Credit card issuers want your business. And to get it, they’ll offer you big welcome bonuses complete with points, miles, or cash back. But what happens if you take the issuer up on its offer and apply, only to decide 11 months later that the product isn’t right for you — or you want to avoid paying the annual fee again?
Of all the things you could do, you shouldn’t cancel your credit card within the first year of membership. Doing so could jeopardize your relationship with the issuing bank, cause welcome bonus-related problems, damage your credit score, and more.
Here’s why you’d be wise to avoid canceling a credit card less than a year after opening it, plus some tips on what you should do instead.
Keep Your Credit Cards Open for More Than a Year
There’s nothing wrong with canceling a credit card before paying the annual fee. No matter the reason, it’s perfectly okay. Maybe the annual fee is too difficult to justify; maybe the card doesn’t align with your spending habits. However, how and when you go about it will determine whether you’ll remain in the bank’s (and credit reporting bureau’s) good graces.
The best practice is to hold your card for at least a year — if not two — before you move on. Anything sooner will leave you vulnerable to a host of problems.
You can make the issuing bank angry
When you open a credit card, you establish a relationship with the issuing bank. Generally, if you’re nice to the bank — you pay your statement on time, don’t game the system, and so on — it’ll be nice in return.
Issues arise when banks feel taken advantage of by account holders. An example is opening a credit card, earning a welcome bonus, and then calling to close your account before the one-year mark. Short-term relationships like this aren’t fruitful for banks.
Suffice it to say that banks don’t want these types of relationships at all. For instance, American Express has added the following text into its “offer terms” section on several credit cards, like with the Delta SkyMiles® Blue American Express Card below (emphasis ours):
“If you have a history of cancelling or downgrading American Express Card accounts within your first year and you cancel or downgrade your new Card account within your first year, we may not credit, we may freeze, or we may take away bonus miles from your account. If we determine that you have engaged in abuse, misuse, or gaming in connection with this offer in any way or that you intend to do so, including if you return purchases you made to meet the Threshold Amount, we may not credit, we may freeze, or we may take away bonus miles from your account. We may also cancel any accounts you have with us.”
Amex (and every other issuing bank) wants your business for the long-haul, so the message is simple: Play by the rules or deal with the consequences.
Related: Credit Card Application Rules and Restrictions
Welcome bonus forfeitures and clawbacks
We all like welcome bonuses. Few things are better than earning tens of thousands of airline miles, hotel points, or several hundred dollars worth of a cash-back bonus. Playing by the rules ensures you keep what you’ve already earned and remain eligible to earn other bonuses in the future.
Banks are serious about this, too. If you attempt to game the system or take advantage of the banks, they’re within their right to prevent you from earning future bonuses — or even claw back bonuses you’ve already received. And yes, that could include ones you’ve already spent.
With the threat of disciplinary action and the potential consequences, the risk of taking action on your account before the one-year mark is not worth the reward — especially if you do this habitually. A better practice is to wait a year or two and then devise a plan to move on from your credit card or ask for a retention offer, as we’ll discuss shortly.
Related: A Beginner’s Guide to Building a Credit Card Application Strategy
Credit score implications
Closing credit card accounts quickly after first opening will impact more than just your relationship with the issuing bank. Your credit score will likely feel the pain, too.
15% of your credit score is comprised of the length of your credit history. Opening and closing cards can decrease your average account age, potentially pulling down your credit score. Lower credit scores can make future approvals more difficult.
A workaround is to change your card to a no-annual-fee credit product instead of canceling your card outright, but this practice often has restrictions. You’ll want to wait at least a year after first opening the account to ask the issuer to swap your fee-carrying product for one without an annual fee. Banks could see this as an attempt to game the system if you move too fast.
Related: Does Adding a Credit Card Improve Your Credit Score?
After the One-Year Mark: Cancel, Downgrade, or Get a Retention Offer
Not every card is a long-term keeper. In fact, some are good for the welcome bonus and not much else. But if you’ve decided it’s time to move on from a card, what’s the best way to do so? Here are three options you should weigh after you’ve kept the card in your wallet for at least one year.
Cancel your card
It’s not illegal to cancel your credit card, but note two things: You shouldn’t make a habit of doing it at the one-year mark, and it’s a great idea to prioritize other options before you call to cancel.
We’ve touched on the fact that one year is the threshold to avoid problems. However, it’s wise to give yourself a cushion if you’ve decided not to keep your credit card any longer. The main reason for this is the algorithms that determine offer eligibility.
We don’t know what goes into these algorithms. Thus, you should be cautious when you see something like the one American Express alludes to in its eligibility checker:
“Welcome offer not available to applicants who have or have had this Card. We may also consider the number of American Express Cards you have opened and closed as well as other factors in making a decision on your welcome offer eligibility.”
For all we know, one-year cancellations could prevent you from applying and getting approved for future American Express cards. Instead, Amex might look at you more favorably if you wait until year two. There’s no way to tell for sure, as Amex doesn’t disclose this information publicly, but it’s better to be safe than sorry by avoiding cancelations right at the one-year mark.
As we’ll discuss momentarily, there are two other options worth exploring before you cancel: downgrading and asking for a retention offer. Keeping your card or a lower-annual-fee version can preserve your credit score and save you money on annual fees. Thus, canceling outright should be a last resort.
Downgrade to a low- or no-annual-fee card
A handful of credit card families have products with various annual fees. This can work in your favor if you don’t want to continue paying your current card’s annual fee.
Swapping the card in your wallet for a low- to no-annual-fee card is called downgrading or product changing. It requires reaching out to your issuer and exploring options. Depending on your account status, an issuer might prefer to offer you another product to remain a customer — instead of having you sever the relationship entirely.
You’ll also want to wait at least a year after opening your account to inquire about product changes. If you do so sooner, the issuer might not approve your downgrade request.
The perk of keeping your account active via product change or downgrade is that you maintain your line of credit. The longer you keep it open, the older the account age grows, contributing to a healthier credit score. You’ll also keep the available credit, which can help with your utilization rate.
Compared to canceling outright, this is a far more reasonable alternative.
Ask for a retention offer
Asking for a retention offer also requires a conversation with the issuer. In short, you’re asking for an incentive to keep the card for another year. Depending on your card, your account status, and the issuer, retention offers could include bonus points for spending a certain amount of money in a specified timeframe, a waived or partially waived annual fee, or more.
There’s no guarantee an issuer will grant you a retention offer, but it’s worth asking before you try to downgrade or cancel your card.
But there’s a caveat with retention offers. If you accept one, you’ll need to wait another year before moving on from your card or trying to product change. Think of the offer as you would a welcome bonus. Taking advantage of the issuer’s good graces will open you up to the same issues associated with canceling your card outright before or at the one-year mark.
Related: How To Plan a Long-Term Credit Card Strategy
Final Thoughts
There’s nothing wrong with opening a credit card for the welcome bonus. However, you should avoid canceling your card before you reach your first account anniversary. If you make a habit of closing cards less than a year after opening them (or exactly at the 12-month mark), you might become ineligible for future welcome bonuses. You also might fall out of favor with card issuers, creating even further problems down the road.
In short: Always keep your credit cards open for at least a year.
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