How long should you keep a credit card before cancelling

Many credit cards come with a generous sign-up bonus that helps you earn cash back, points or miles. They can be a great way to save money, especially if you already had planned on spending the minimum threshold to earn them.

For instance, the Capital One SavorOne Cash Rewards Credit Card is on Select's list of the best cash-back credit cards because of its simple welcome bonus: New cardholders earn a one-time $200 cash bonus once they spend $500 on purchases within the first three months from account opening. That means earning 30% cash back. The card also offers 3% cash back at grocery stores (excluding superstores like Walmart® and Target®).

But what happens after you cash in on your new card's welcome bonus? Do you still need to keep the credit card?

"This is a common question, especially if the card has an annual fee, which is typical of cards that provide the best rewards," Shon Anderson, a certified financial planner and president at Anderson Financial Strategies, tells Select. "People should definitely not cancel their card immediately after the incentive ends."

While you certainly can cancel your credit card after the incentive ends, we look into why experts like Anderson generally don't recommend you do.

1. Your card's annual fee is a sunk cost whether or not you cancel it after your incentive

If you signed up for a credit card solely for its big welcome bonus, such as the Chase Sapphire Reserve®. New cardholders can earn 80,000 bonus points after spending $4,000 on purchases in the first three months. But immediately canceling the card after earning the bonus won't take away the hefty $550 annual fee you're paying. If you were hoping to get out of paying an annual fee by canceling your credit card, here's Anderson's advice:

"At a bare minimum, wait until the card anniversary since the first year's annual fee is a sunk cost at this point anyway," he says. "At that point, usually you can negotiate your way out of one or two annual fees, or they may credit you with an additional reward if you pay the fee."

Why should you hang on to it? If it offers good cash back or travel miles and you've already paid the fee, there's no reason to miss out on a year's worth of rewards. It's better to mark the renewal date in your calendar and cancel it once you've gotten your money's worth out of it.

Before you get stuck in that situation, it's best to look for credit cards with no annual fee. The Capital One Quicksilver Cash Rewards Credit Card has no annual fee and a one-time $200 cash welcome bonus once you spend $500 on purchases within the first three months. Cardmembers also earn 1.5% cash back on every purchase, making it easy to find value in using this card no matter where you're headed.

If you've signed up for an annual fee card that no longer rewards you for the spending categories you use the most, consider asking your issuer if you can downgrade to a no-fee card. This should not count as a new inquiry on your credit report and should have minimal impact to your score. If this option is unavailable, it may be the only exception when it makes sense to cancel your card. 

2. Canceling your card because your incentive ended can temporary ding your credit score

Quickly opening and closing credit card accounts to redeem different welcome offers — also referred to as "credit card churning" — can cause your credit score to drop a few points.

There are two reasons why:

1. Your credit score goes down slightly when you apply for credit because the lender is pulling a hard inquiry to see how credit worthy you are. If you are constantly applying for credit cards, this can add up to a lot of hard inquiries on your credit report, thus lowering your credit score, even if just a little over time.
2. Canceling a credit card leaves you with less available credit overall. Having an available line of credit, or a high credit limit, is good for your credit score. This amount of credit you have available but choose not to use is calculated into your credit utilization rate (along with your credit card balance). This helps lenders judge whether or not you responsibly use credit. You want a high credit limit and a low balance to achieve the best credit score. Canceling your card takes away from this limit. The impact on your credit score depends on how big your credit limit was on the card you closed, but it can be significant.

3. You could regret it later on

There are a number of scenarios where you may regret canceling your credit card — both now and in the future. Let's take a look.

Taking advantage of a sign-up bonus to earn all the points or miles you can isn't a bad idea, but if you cancel your card immediately afterward without ever using the points you earned, you may actually lose them.

Credit card issuers could also see this behavior as a red flag for the future. They can quickly catch on that you are signing up for cards only to earn their bonuses and then canceling in a short amount of time, which will put you at risk of damaging your good credit in the long-run.

And there's another occasion where this credit score ding can doubly harm you. Roger Ma, a certified financial planner atlifelaidout® and author of "Work Your Money, Not Your Life," urges consumers to consider whether they will be trying to get a loan in the next 12 to 24 months.

If so, Ma advises that it may make sense to hold onto that card — especially if it's your oldest one — or downgrade to a no-fee card if necessary. You'll want to make sure you take every measure to protect your credit score when you know you'll be applying for a loan or a mortgage coming up. A healthy credit score can help you qualify for a lower interest rate, which will save you more than enough to outweigh the cost of the annual fee over time.

Last, you never know when you might need an emergency card. While a credit card is not exactly a replacement for an emergency savings, it may come in handy if something comes up (such as the coronavirus pandemic) and you find yourself needing a way to afford emergency expenses in a pinch.

Bottom line

The big windfalls of extra cash back, points or miles you can receive with a credit card sign-up offer are worth it as long as you are able to pay off your balances in full and on time every month. It's also worth doing your homework before applying to make sure the card is useful for your future spending.

Experts generally don't recommend you ever cancel a credit card, unless you're paying for it (such as in the form of an annual fee) and not ever using it. And if this is the case, canceling a card once probably won't hurt you as long as you have a healthy credit history otherwise.

Consider instead of canceling your card, stashing it away and only using it intermittently. This credit expert with a perfect credit score has six cards and only uses one daily; the other five he doesn't carry on him and dusts them off to use every six or eight months. Remember, it's important you use your credit cards to keep them open and active, but you don't need to use them every day.

Information about Capital One SavorOne Cash Rewards Credit Card and Capital One Quicksilver Cash Rewards Credit Card has been collected independently by Select and has not been reviewed or provided by the issuer of the card prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.

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