“Maximizing Value: When to Keep or Cancel a Credit Card with an Annual Fee”

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Understanding Credit Card Annual Fees

At O1ne Mortgage, we prioritize consumer credit and finance education. This post aims to provide an objective view to help you make the best decisions regarding credit card annual fees. For more information, see our Editorial Policy.

How a Credit Card Annual Fee Works

Credit card annual fees are typically found on premium rewards cards, travel cards, and secured cards. Some issuers waive the fee for the first year to attract new cardholders, but generally, you’ll pay the fee when you first open your account and on each anniversary of your account opening. The fee may be added to your account’s balance immediately, so even if you don’t use your card for purchases, ensure you pay your bill on time to avoid late payment fees.

When You Should Keep a Credit Card With an Annual Fee

Paying an annual fee might be worth it if you’re earning substantial rewards, enjoying cardholder benefits, or getting other value from the card. Here are some scenarios where keeping the card makes sense:

• Offsetting the Annual Fee with Rewards: Estimate your annual rewards earnings and compare them to a no-annual-fee card. If the difference exceeds the annual fee, it might be worth keeping the card.
• Utilizing Cardholder Benefits: Some cards offer perks like airport lounge access, free hotel stays, primary rental car coverage, and statement credits. Consider how often you use these benefits and if they’re worth the annual fee.
• Intro 0% APR Offers: If you opened the card for an introductory 0% APR offer, you might need to keep it open while paying off the balance.

When You Should Cancel a Credit Card With an Annual Fee

If you’re not getting much value from the card anymore, closing it might be a better option. Consider the following:

• Mental Energy on Rewards: Cards with annual fees often require more management. A simpler, no-annual-fee card might be a better fit.
• Low Rewards Earnings: If the rewards aren’t significantly higher than those from no-annual-fee cards, it might not be worth the fee.
• Rarely Using Benefits: If you don’t frequently use the card’s benefits, or if your lifestyle has changed, the card might not be as valuable.
• Changes in Benefits or Rewards Programs: If the card’s benefits or rewards program has changed, it might not align with your needs anymore.

Consider Downgrading Your Credit Card Instead of Canceling It

Downgrading to a card with fewer benefits and fees can be a good alternative to closing your account. This option can help you:

• Maintain Your Credit Score: Switching cards without closing your account generally won’t affect your credit score.
• Keep Your Rewards: You might be able to keep your rewards by downgrading to another card within the same rewards program.

However, promotional APR offers might not transfer to the new card. Product changes aren’t always available, so call your card issuer to discuss your options.

How Canceling a Credit Card Affects Your Credit

Closing a credit card can impact your credit scores by changing your credit utilization ratio and credit mix, and it may affect the average age of your accounts over time. Here are some potential effects:

• Higher Credit Utilization: Closing a card reduces your available credit, which can increase your utilization ratio and hurt your scores.
• Fewer Revolving Accounts: A mix of open revolving and installment accounts can help your scores. Closing your only credit card might reduce your credit mix.
• Average Age of Accounts: Closed accounts can stay on your credit report for up to 10 years, but once they fall off, the average age of your accounts may decrease, potentially hurting your scores.

Keeping credit cards open is generally better for your credit scores. Downgrading or asking for a fee waiver might be a good first step. However, if saving money on annual fees is a priority, the impact on your credit could be minimal if you have other credit cards with low balances or plan on opening a new card soon.

Compare New Credit Card Offers

Check your credit report and score for free to see where you stand. If downgrading your card makes sense, your credit score won’t affect your options. However, if you decide to close your card and open a new one, use a card comparison tool to find and compare offers based on your unique credit profile.

For any mortgage service needs, call O1ne Mortgage at 213-732-3074. We’re here to help you make the best financial decisions.

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