Thinking about Cancelling All Those Credit Cards? Think Again

Thinking about Cancelling All Those Credit Cards? Think Again

"Spend $500 in the first three months and get $100 back." Remember, the last time you signed up for a credit card like that? Or being tempted to do so, only to think, I can always cancel the card later. Well, think again before signing up for cards just for promotional rewards and then canceling them. Truth is, canceling your credit card can be damaging to your credit score.

First, let’s start off with what makes up our credit score:

Accounting for 35% of our credit score is our payment history. Yes, this means please pay your bills on time.

Trailing closely behind, the number of accounts you have and the amount you owe on them accounts for 30% of your score.

Coming in third is the length of your credit history, which makes up for 15% of your score. Hence, think twice before closing a credit card that you’ve had and used for a long time.

Fourth is the number of recently opened accounts and latest credit inquiries, making up 10% of your score.

Last but not least is the number and types of accounts you have, such as credit cards, mortgages, auto loans and etcetera. Having a nice mixture of various types of accounts can be a good thing for the last 10% of your credit score.

Now that we know the factors that come into play when determining your credit score, can you see how canceling a credit card can negatively affect most of the factors mentioned? For example, for FICO, a renowned credit score company, the credit utilization ratio comes into play when we look at the second credit factor mentioned. Credit utilization is the number of credit accounts you have and how much you owe on them. It is expressed as a ratio of your credit balances to your credit limits, also known as the debt to credit ratio.

For example, if you have a credit card with $1000 limit and your balance on the card is $250, dividing your balance by the limit will give you a credit utilization of 25%. The general idea is the lower your credit utilization ratio, the better. Many credit experts propose keeping it below 30%.

So, here’s how canceling a credit card can affect your credit utilization ratio and ultimately your credit score. Canceling a credit card on hand will reduce your available credit limit. As the number in the denominator of the credit utilization ratio decreases, the ratio itself increases and negatively affects your credit score.

But what if you have good reasons to cancel a card. Maybe the interest rate is too high or the annual fee is outrageous. No worries. Canceling a card does not have to be damaging to your credit. Here’s how:

Pay off all your balances before canceling a credit card. If the balances on all your accounts are zero, your credit utilization ratio will be zero no matter what your credit limit is. Hence, in this case, although your credit limit went down, your score can remain as it is.

Before canceling a card, you can request a credit limit increase from another one of your card company. If you’ve been a good card user and have a good history with the company, the request should be easily granted. This increase in credit limit may offset the credit limit associated with canceling your card.

Nonetheless, although canceling a credit card may damage your credit score, it is still important to remain a responsible cardholder. This means paying all your bills on time, not maxing out your cards, and open new accounts only when necessary.

Find the best credit card for your needs.

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Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

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Should You stock up On ThankYou Points with the Citi ThankYou Premier credit card offer?

Should You stock up On ThankYou Points with the Citi ThankYou Premier credit card offer?

For those looking for a credit card that offers great travel rewards, the Citi ThankYou Premier card might be a decent option.

The Citi ThankYou Premier Card offers users 25,000 bonus points after $2000 in promotional spend over the first 3 months of membership.  The card carries an annual fee of $125, but that is waived for the first 12 months.

ThankYou points can be redeemed for gift cards and for airfare.  When used for giftcards, ThankYou points ordinarily have the value of one penny apiece (25,000 ThankYou points gets you a $250 gift card).  However, the points have 33% more value when used directly for airfare (those same 25,000 ThankYou points can cover $333 in airfare, which might be able to get you a round trip ticket from NYC to LAX).

Besides getting an added value when redeeming airfare with your ThankYou points, the card also has no foreign transaction fee on purchases. Hence, you can go anywhere in the world and not have to worry about being charged a fee when making purchases in another currency.

An additional travel incentive is an annual domestic companion ticket and a 15% discount when you book your air travel through Citi’s benefits provider, Spirit Incentives.

Additional Features

For those who want to be rewarded for everyday spending, the Citi ThankYou Premier card has its attractive features as well:

You get 1 ThankYou Point for every $1 spent on purchases. Additionally, you earn 20% more, 1.2 ThankYou points for every dollar spent, when you use your card at supermarkets, gas stations, drugstores, commuter transportation and parking merchants.

In order to get you to maintain your cardmembership, Citibank offers you can even earn an anniversary bonus on points earned from purchases made throughout the year. The longer you are a member, the higher the bonuses, which goes up to 5% after 4 years of membership.

There is no limit on the points you can earn and no expiration date for redeeming your points.

The card also allows you to add an authorized user to your account to earn points faster, has no pre-set spending limit, and includes other additional services. 

Conclusion

Some will find that they get great bang for their buck through the Citi ThankYou Premier card’s attractive rewards, but most will find that one of the other rewards credit cards offered by Chase or by American Express to be substantially more attractive.  This will be especially true for those seeking to covert their spending loyalty into hotel or airline rewards.  Chase’s Ultimate Rewards and Amex’s Membership rewards program allow for points to that can be transferred to the programs of leading travel partners, including British Airways, United (Chase), Delta (Amex), Hyatt (Chase) and Starwood (Amex).

Apply for the Citibank Thank You Premier Card here.

Find a better travel and rewards card here.

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Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.


Fly away with American Airlines Citi Platinum Select / AAdvantage Visa Signature credit card offer

Fly away with American Airlines Citi Platinum Select / AAdvantage Visa Signature credit card offer

One of the best credit card offers for frequent travelers is the Citi Platinum Select / AAdvantage Visa Signature card.

The Citi® Platinum Select® / AAdvantage®  Visa Signature® card offers users 30,000 AAdvantage® miles after just $1,500 in purchases within the first 3 months of card membership and the first year’s fee of $95 is waived after that.

The 30,000 miles is quite attractive as it is more than enough for a round trip flight anywhere in the US, and ¾ of the amount required for a coach ticket to Europe.

What makes this offer attractive?

American Airlines requires less mileage for some of the most popular award redemption flights, compared to many other airlines. For example, American Airlines requires only 35,000 miles for its lowest level reward flight to Hawaii, while the minimum number of miles required for the same destination on USAir and Delta is 40,000 miles.

American’s lower mileage requirement also applies to reward flights to Europe.  On American Airlines, the lowest reward level is 40,000 miles while both USAir and Delta require 60,000 miles.

Additional Features of the Card

American Airlines and Citibank make the card particularly valuable to those who travel regularly on that airline.  Those who hold the card receive:

10% of the miles you redeemed each year, up to 10,000 miles, credited back to an AAdvantage® account

A $100 discount on an American Airlines flight, or on a flight on its oneworld ® partner airlines, when you spend $30,000 on the Citi® Platinum Select® / AAdvantage®  Visa Signature® card in one year

First checked bag is free, for you and up to four travelling companions. At $25 per first checked bag, this could save up to $125 on a single one-way flight.

American Airlines also offers it AAdvantage® members lots of opportunities to earn many more miles, such as getting 5 miles per $1 spent when shopping on American Airlines Skymall.

Even with the annual membership fee of $95, which is waived for the first year, the rewards this card offers make it attractive.

Learn more about this card and compare other credit card reward programs here. 

Editorial Disclosure: Opinions expressed here are those of the author, and have not been reviewed, approved or otherwise endorsed by any bank advertiser, card issuer, airline or hotel.

Advertising Disclosure: This site may be compensated for hosting offers.