Which Credit Cards Should You Keep, Downgrade or Close?

If you’ve been in the points and miles game long enough, it’s likely you’ve racked up a fair amount of plastic in your wallet. Opening cards for their welcome offers, ongoing bonus spending categories and cardholder perks often means you’ll have a wide variety of credit cards. And accompanying those cards is a wide variety of annual fees.

However, just because a card offered you solid value a few years ago doesn’t mean it will continue to do so today. Your travel and spending habits can change over time, affecting the value proposition of the cards you hold.

For this reason, it’s important to keep track of your cards and consider whether they continue to offer you the same value as they previously did. If not, it’s time to decide whether to ask for a retention offer, downgrade or close the card account.

Let’s look at your options and how best to go about managing your cards.

Keeping Track of Your Cards: Conduct an Annual Review

Shortly before it’s time to pay the annual fees on your existing cards, it’s wise to step back for a moment and consider how much value each of your cards give you.

For some cards, this will be obvious. Perhaps you utilize all the statement credit perks on one card and use another card to earn thousands of points on your everyday spending. These are cards to keep.

However, some cards may be collecting dust at the back of your wallet, seeing little to no usage. And if they charge an annual fee, you should consider whether to downgrade or close these card accounts. Likewise, even cards that you use regularly that charge an annual fee should be questioned—specifically, are you putting enough spending on the card to justify the annual fee?

An easy way to calculate this is to review how much you charged to the card within the last year, as well as the monetary value of the card’s perks you used. Here’s an example.

Let’s say you charged $8,000 to your Chase Sapphire Reserve® in a year and average 3X points per dollar (dining earns you 3X points, hotels and flights booked direct earn 4X points, all other purchases earn 1X points). That would earn you 24,000 Chase Ultimate Rewards points.

If you redeem these points for an average value of 1.5 cents apiece (this will depend on your flight or hotel redemption, whether it’s direct or through the portal, etc.), your 24,000 points will be worth $360. In this case, you’d be paying $795 in annual fees to get $360 worth of points to redeem—meaning the card costs more to hold than you receive in points. If that was the case, it’d be worth considering a downgrade.

However, that’s assuming you’re not reaping value from any of the card’s other perks. If you were to use the Sapphire Reserve’s annual $300 travel credit on top of your $8,000 in spending, you’d get at least $660 worth of value from the card. Likewise, if you take advantage of its other perks, from complimentary Priority Pass Select™ membership to its comprehensive travel protections, you’d offset its annual fee even further.

By performing this calculation with each card you hold, you can determine whether to keep or downgrade it.

Typically, in the first year of card membership, earning a card’s welcome offer will enable you to offset the annual fee. However, in subsequent years of card membership, it’s the card’s bonus spending categories and cardholder perks that will determine your ability to offset its annual fee.

Is Canceling a Card Worth the Hit to Your Credit Score?

So, if you’re paying more in annual fees than you’re getting back in points and perks, you should just close your card, right? Not so fast.

Where possible, you always want to avoid canceling your credit card—it should be your very last option.

Canceling a credit card reduces the overall age of your credit accounts. The longer you’ve had a card, the greater the effect will be. Closing a card account can result in a hit to your credit score, as both the FICO and VantageScore® models use “length of credit history” and “depth of credit,” respectively, to determine your credit score.

When you cancel your card, the FICO model counts it on your credit report for up to 10 years if it’s positive and for up to seven years if it’s negative. That means the drop to your FICO score isn’t typically immediate, but will instead occur after this period. In contrast, the VantageScore model doesn’t always include closed accounts on your credit report, which could cause a hit to your credit score earlier.

In the event that you’re carrying a balance—which we never recommend—canceling a credit card will also increase your credit utilization rate, further affecting your credit score. Your credit utilization rate—or ratio—is simply your total aggregate credit limit across all cards compared to your current level of debt.

For instance, carrying a balance of $3,000 with an aggregate credit limit of $10,000 would give you a credit utilization rate of 30%—the recommended maximum. If you canceled a card and brought your aggregate credit limit down to $6,000, that same balance of $3,000 would now represent a credit utilization rate of 50%.

For these reasons, it’s best to avoid canceling a card where possible, particularly when you’re applying for other lines of credit simultaneously, such as a mortgage or new credit card. The only situations that justify account closure are when your card issuer won’t give you a retention offer or product change, and when you need to detangle your finances from another person, such as during a divorce.

Alternatives to Account Closure

Before giving up hope and canceling cards that aren’t valuable to you anymore, there are two options to pursue: asking for a retention offer and asking for a product change.

Ask for a Retention Offer

If you’re skeptical about the ongoing value a card can offer you, calling your card issuer and asking for a retention offer can be a solid move.

A retention offer is made by a card issuer or bank in an attempt to retain existing customers. They can come in the form of annual fee reductions or waivers, as well as bonus points, miles or statement credits with minimum spending thresholds. Retention offers can be as valuable as welcome offers, earning you tens of thousands of points, hundreds of dollars worth of statement credits or allowing you to enjoy a card’s benefits without its usual annual fee.

Generally speaking, the more spending you charge to the card, the greater the chance is that you’ll receive a retention offer.

Simply call your card issuer and explain that you’re considering canceling your card as its benefits don’t justify its annual fees. If you’re lucky, you might score an offer that can make the card worth holding for another year or two.

Ask for a Product Change

If your card issuer doesn’t give you a retention offer, your next best option is to ask for a product change. This could be a downgrade or an upgrade.

For example, perhaps you used to fly frequently with United Airlines and benefited from holding The New United Quest℠ Card. However, if your travel habits have changed and you no longer fly United, justifying the Quest Card’s $350 annual fee may not be possible anymore. In this case, you could call Chase and ask for a downgrade to the $0 annual fee The New United Gateway℠ Card.

By asking for a product change, you gain two advantages.

First, you won’t need to close a line of credit, which means the overall age of your accounts will remain the same, protecting your credit score. Second, if you choose to product change to a card with a higher annual fee—perhaps because the increased number of benefits included would make it easier to offset the annual fee, despite it being higher—you won’t need to make a separate credit card application. This means no hard inquiries on your credit score, protecting it further.

Just keep in mind that you can typically only downgrade or upgrade to cards within the same card family. That means you could switch from one co-branded Chase United card to another United card, but not from a United Card to a Marriott Bonvoy or Sapphire card.

Give your issuer a call and see what they can offer you—you’ve got nothing to lose by asking.

Final Thoughts

The hobby of racking up travel rewards can get quite addicting. And how can it not be? When you can take an almost-free trip with the help of just two credit cards, it’s easy to get caught up in chasing the high of an approval only to repeat the cycle every few months.

However, earning welcome offers on multiple credit cards means paying multiple annual fees. It’s one thing to travel enough to offset those fees, but it’s another to shell out hundreds of dollars every year for cards you no longer use.

So, review your wallet full of cards before paying another year’s worth of annual fees, and give your card issuer a call to ask for a retention offer or downgrade on the cards that have stopped offering you value.