Sometimes it takes a lot to standout from the crowd in a niche. That is why I like Geoff from Noob Traveler because he does an excellent job of deciphering credit card offers and explaining them to the noobies out there that may not know what we sometime take for granted. Please welcome me in joining Geoff as an InACents guest poster.
Rewards credit cards have taken over the world in the last couple of years. The sign-up bonuses alone on the cards I have applied for have allowed to me travel the world like I could only have dreamt about before. I’m a day dreamer, so I was an expert in wondering about international travel. I don’t have to wonder anymore, thanks to rewards credit cards.
Most of the rewards cards I sign up for have the annual fee waived for the first year, but what do I do when the annual fee is right around the corner? Run far away? Panic and cancel the card? No, no, no. Before you cancel your credit card in a panicked rush, know a couple of things first.
Credit Effect of Canceling a Credit Card
When you cancel a credit card, you end up shortening your average age of account. “Average age of account” plays an important role in your credit score, so you want loooong credit accounts, if possible. So how do we do that? Well, there are two techniques that I practice to keep my accounts open, and often times I will even get more miles/points or cash money to keep my account open.
Retention Bonus
A popular technique of obsessed miles addicts (me) is to call and get a retention bonus. The ideal time to call and try for a retention bonus is 10-11 months after you applied for the card, before the annual fee hits. It takes some skill to perform a retention bonus call, because you are actually calling to cancel your credit card with the hope that you won’t have to. You will tell the bank that you are canceling because you don’t want to pay the annual fee. At this point, they will usually transfer you to their “retention” department. This is good. Because the bank wants to keep you as a customer, they will often given you a credit to offset your annual fee or a miles bonus that justifies your annual fee. See what they have to offer you. More times than not, the retention bonus I receive is greater than the annual fee, so it’s like I’m getting paid to keep my rewards card. Once again, you are keeping your credit account open and letting it age another year. This is a very, very good thing. Gets me all excited.
NOOB TIP #1: I always run some purchases through a credit card if I haven’t been using it before I try to get a Retention Bonus.
Downgrade Your Card to a No Annual Fee Card
Another way to get around paying the annual fee while keeping your credit account history is to downgrade to a “no fee” version of your card. This is a great strategy that doesn’t get talked about enough. If you are able to downgrade your card to a no fee card, keep that card FOREVER! For example, the Chase Sapphire “Preferred” card can be downgraded to the regular Sapphire. You will lose some of the Preferred benefits, but you don’t have to pay the annual fee. To downgrade your card, just call the number on the back and the rep will be able to tell you if there are any options for you.
Pick One.
Signing up for rewards credit cards is a great way to travel on a budget you can afford, but strategy is important. The most important thing in doing this is protecting our credit, and canceling cards unnecessarily can have a negative impact on our credit score. So the next time you are frantically wanting to cancel that card, take a deep breath. Get a retention bonus or downgrade your card instead. Boom.
NOOB TIP #2: If you have a credit card that you have had for many years and it doesn’t have an annual fee, DON’T EVER close it. That’s it. Don’t close it. Keep it forever.
NOOB TIP #3: Never close a rewards card right after receiving a sign-up bonus. Don’t do it. Banks “technically” could take back your sign-up bonus or they could “black list” you. Both of these options are bad.
To read more about what Geoff has to say, please consider heading over to the Noob Traveler.
