Should you keep a credit card open after the annual fee hits?
The Conundrum
Every time one of our credit cards comes up for renewal, I stare at the annual fee and I ponder the conundrum: is this card really worth keeping open another year? To clarify, there is no conundrum for me to keep a credit card with no annual fee open. Although I may not use the card very often (as most no-annual-fee cards are not accompanied by a ton of perks, with the Bilt Mastercard a notable exception), since 45% of your credit score is based on the length of your credit history and your credit utilization ratio (amount of credit you use divided by the amount of credit you have available), it makes sense to keep open. So, I will never close a no-annual-fee card that offers us credit that we rarely use (lowering our credit utilization ratio), especially if the card has been open for numerous years (increasing the length of our credit history).
So, this article is focused around the conundrum that sets in when I am weighing whether to keep a card with an annual fee open. Since most of our focus is on “churning” credit card sign-up bonuses (opening a card mainly for the sign-up bonus, rather than just the benefits of the card), there is often a big tension for us when that card comes up for renewal and we’re facing the annual fee, without the appeal of a new sign-up bonus dangling in front of us.
The Factors
Ultimately, I think the decision of whether to keep a credit card open or to close it is a subjective decision. However, here are the primary factors I consider when deciding:
1. How much value do you place on the benefits/perks of the card?
Every credit card with an annual fee offers benefits/perks, trying to convince you that the value you receive from keeping the card open outweighs the annual fee. How often and to what degree you utilize those benefits is the biggest variable to consider when deciding whether to keep the card open.
Let’s use an example of a card we recently kept open after renewal:
Capital One Venture X
($395 annual fee)
$300 Travel Credit (we value around $275, discounting it a bit, since it is restricted to use in the Capital One Travel Portal)
10,000 bonus points every cardmember anniversary date (we value at $100, as that is the baseline of what you could use it on with the Travel Eraser)
Priority Pass Membership (we value this at $100, even though we have other cards who offer memberships, it’s our best option to get a family of 4 into lounges, with free authorized user cards + 2 free guests per cardmember)
Insurance/Protections (we value this at $100, as we actively utilize the primary car insurance and trip protections)
Since we value the benefits of the card at $575, for a $395 annual fee, we decided to keep it open when it came up for renewal in November 2022.
Let’s do an example of a card that we recently closed:
Barclays AA Aviator Red
($99 annual fee)
First Checked Bag free (we value this at $0, since I have Executive Platinum status with AA, I get 3 free checked bags already)
Anniversary Companion Certificate (we value this at $0, since you have to put $20k spend on the card to receive the certificate, which we would never plan to do with the low spending bonus categories)
In-flight Wifi credits (we value this at $25, as we do fly AA enough to use this credit fully)
Since we would only foresee $25 in value for a credit card with a $99 annual fee, we closed this card a few months back. This was strictly a “churn and burn” situation. We wanted the 60k bonus points (with no minimum spend for the sign-up bonus) and, at renewal, it didn’t make sense to keep it open. However, like I mentioned above, this is highly personal/subjective. If you don’t have elite status with American, and have a few trips planned with them in the next year, and plan to check bags, the free first checked bag benefit could easily pay off for you and make it worthwhile to keep open!
Note: Never cancel a credit card before your first year is up! You are in danger of your sign-up bonus being clawed back. Wait for the annual fee to hit before you take any action!
2. Is a retention bonus offered?
If the projected value of the card is less than the annual fee, we are not afraid of the potential temporary 2-5 point drop in our credit score after we close a credit card, but the optimal situation is that we are incentivized to keep the card open by the credit card issuer. Why? Again, 45% of your credit score is based on the length of your credit history and your credit utilization ratio, so the more available credit you have, the better (assuming you are responsible with it!)
This is where retention bonuses come into play. Most credit card issuers have a system in place where customer service agents have the ability to offer you some combination of bonus points or a percentage of the annual fee being waived to incentivize you to keep the card open. This is way more common for cards that earn transferable currencies (like Chase Ultimate Rewards or Citi ThankYou points) and on cards with higher annual fees (think $250-695). Most also have a policy that they will not offer a retention bonus on a card two years in a row. However, our policy is: It never hurts to ask.
So, how do you ask? There’s not a perfect way to do it, honestly. However, there is a terrible way to do it: flat-out asking, “Can I have a retention bonus?” You’ll need to play a bit of cat-and-mouse! Here’s what we most often do:
Call the customer service line on the back of your card.
Inform the customer service agent that you are considering closing the card now that the annual fee has hit. You are wondering if you can justify the annual fee, in light of the benefits/perks of the card that you utilize.
If they don’t immediately hear something like, “Let me see if there are any options on my end to incentivize you to keep the card open another year…” from the agent, then I would nudge a bit harder: “I’m not sold on wanting to close the card, but I was hoping to see if there’s anything you could do on your end to make the annual fee easier to swallow.”
Since you already did your analysis (from Step 1), you know what retention offer would make it worth your while to keep the card open or not.
Let’s use another example:
American Express Personal Platinum
($695 annual fee)
Lounge Access (we value at $0, since we use the Priority Pass/Plaza Premium lounge access through the Venture X, and the Centurion Lounges have been so crowded we rarely, if ever, use them!)
Airline Incidental Credit (we value at $175, since we get almost full value from building up our United Travel Bank)
Prepaid Hotel Credit (we value at $0, as we would rarely, if ever, stay at one of the eligible hotels)
Saks Fifth Avenue Credit (we value at $75, as we have received close to full value from the benefit, buying things like kitchen knives and kid’s clothes)
Uber Credit (we value at $75, as we would not use Uber nearly as often without the credit)
Monthly Digital Entertainment Credits (we value at $240, as we use these completely)
I know you might be wondering, “Why would you open a credit card with a $695 annual fee in the first place?!” Remember: It always comes back to the sign-up bonus! When we signed up for the card in 2021, the sign-up bonus was 125k bonus points after $6k spend. In addition, there was a category bonus of 15x points on restaurants and small business spend during the first 6 months (this offer is no longer available). We also used a 30k point referral from Courtney’s account. In addition, during those initial 6 months, AMEX offered a referral bonus from my Platinum to any other card for an additional 4x bonus points on EVERY purchase, even on top of restaurant and small business purchases, which turned those purchases into 19x! This is in addition to the points that we received on the spending itself. So, in the end, from the sign-up bonus, we earned: 640,000 AMEX Membership Rewards points! We value those at least $11,520 (1.8 cents per AMEX point). Don’t get me wrong, a $695 annual fee hit HARD when we first opened the card, but not enough to say no to $11k!
However, when you take the sign-up bonus out of the equation, was it still worth $695? As you can see, not without a retention offer, it wasn’t! We were only projecting $565 in value for the card. However, after we were offered 30k bonus points after 4k in spend in 3 months, which we value at $540, we renewed!
3. Is there an option to downgrade?
As I’ve mentioned a few times already, the goal is usually trying to keep the available credit open on a card, while making sure you project to get more value from the card than the annual fee. If your projected value is less than the annual fee, and you are not offered a retention bonus, before you cancel, first make sure there is not an option to downgrade the card to a no-annual fee card.
A few examples of when it made sense to downgrade:
JetBlue Basic
We downgraded from the JetBlue Plus card, which has a $99 annual fee, because after we earned the 100k sign-up bonus, the benefits of the card did not outweigh the annual fee, and no retention bonus was offered.
Chase Freedom Flex
We did the same after we decided the Chase Sapphire Reserve’s benefits did not outweigh the annual fee and no retention bonus was offered.
One important note: We rarely downgrade an American Express card. Why? American Express has a rule that you cannot earn the sign-up bonus on a card more than once in a lifetime (which they define as 7 years, so I guess we’re talking more guinea pig lifetimes than humans!) So, if you downgrade to a card that you’ve never earned the sign-up bonus on, you’re ineligible to receive that sign-up bonus for at least 7 years!
In conclusion, the process of deciding whether you want to keep a card open after an annual fee hits, is completely a subjective one. However, taking these 3 variables into account can help you bring a good dose of objectivity to the table as well!
Side note: Make sure you have an air-tight system where you track the cards that you have open, the cardmember anniversary date, and your tentative plan for what you will do at renewal is so important. If you don’t already have a system, you can download our free Points/Miles Spreadsheet or an app like Award Wallet. This process is not possible if you don’t have a firm handle of what cards are coming up for renewal and when!
