What to do with "Bad" Credit Cards

Keep

The general rule of thumb is to not close credit cards because it can lower your credit score in a couple of different ways I explained in this blog post. Mainly, by closing the card, you'd lose the credit history and credit limit, so you'd rather preserve that in a card if possible. This is especially true if one of your cards is your oldest card' you don't want to cancel and lose that amount of history. 

Generally it's fine to keep the card active since there's no annual fee to pay and you might even have some additional perks that you might use once in a while. For example, even though we never use the Bank of America Customize Cash card now, sometimes it has useful Merchant Offers not found on other cards that give us just enough of a bump to consider using that card to earn more cash back. 

Finally, keeping a card maintains the relationship with that bank, as cancelling could potentially hurt your chances with future applications.  To keep the card active, we advise putting a small charge on the card every 6 months. We just do a $2 reload on our Amazon balance so we don't even have to take the card out. 

Cancel

Even without an annual fee, there are a couple reasons why you would want to cancel the card. 

• You need to make space for newer credit cards. Some banks like Amex only allow up to 5 credits cards per user, so if you want another card, you'll need to cancel one of your older ones 

• It can be burdensome to handle and track more and more cards, and then run the risk of losing/succumbing to fraud

• You forget to maintain its activity and so the bank might even close it automatically 

When it would be okay to cancel

• It's a business credit card, so it doesn't show up on your report anyways

• When you have a high enough credit limit across your credit cards, that losing this limit, wouldn't impact your cards right away 

• It's not your oldest card, so you won't lose all of that credit history

• You've had the card for at least a year

What to do before/when you cancel

• If you can, move your credit limit to another card you have in that bank. That way you can preserve the credit limit. 

• Make sure you've transferred or used all of the points on the card so you don't lose that free value

Ask for a retention credit

It never hurts to call or chat with the bank and request a retention credit. A retention credit can be given in the form of straight statement credit or points from banks for you to keep your card for another year. Sometime it also comes with a spend requirement, similar to a sign-up bonus. With this retention credit, it could make sense to keep the card for another year. For example, Sarah was going to downgrade her United Quest airline card, but she first called Chase and received a $100 statement credit to keep the card, which made us decide to keep it. In 2024, we'll try again, but if we are unsuccessful, we'll go to the next step. 

Look for a downgrade path

To maintain the card's history and limit, look for a downgrade path for the card. Each bank will have its own rules and allowances, but generally you want to product switch into a card without an annual fee. Fortunately, most domestic airline credit cards have a no annual fee option and most store credit cards are free already. Some general rules for different banks: 

• Chase - can only upgrade/downgrade within families (e.g., Inks to Inks) except the Sapphires and Freedoms can be upgraded/downgraded between each other. 

• Capital One - you can only "upgrade" cards when offers are available. The "upgrade" could include moving your annual fee card to a no annual fee. 

• American Express - generally it's easy to product change in the Amex family, but the Amex-branded cards have some downgrade rules where the Green, Gold, and Platinum don't have a no annual fee option. 

• Citi - has probably the most relaxed rules, virtually any Citi card and product change into any other one, so the Citi Double Cash or Citi Custom Cash are good options (and you can have multiple ones). 

Cancel

At the end of the day, if the math doesn't make sense to keep the card and you've exhausted all the possibilities of downgrading, it may still make financial sense to get rid of the card by cancelling. Again, just be aware of the rules and tips in the above cancelling section.