Here's Why You Should Never Close a Credit Card Within the First Year

Sometimes you change your mind about a credit card. It looked like the perfect fit at first, but after a few months, you realize it wasn't right for you. Or maybe you just wanted to earn the welcome offer -- you wouldn't be the first to open a card for that reason.

You have the right to close your credit card at any time. And if you want to avoid the annual fee, another option is to ask the card issuer for a downgrade. But it's better to wait until you've had the card for at least one year before closing or downgrading it. If you do it any sooner than that, there could be costly consequences.

You might lose your card's welcome offer

Welcome offers are one of the most valuable benefits that credit card issuers have. They are designed to bring in new customers, after all. Because welcome offers are so valuable, card issuers really don't like it when you earn one, and then get rid of the card shortly thereafter.

Some card issuers even mention in their terms and conditions that they'll "claw back" the welcome offer if the card is closed or downgraded within the first 12 months. They aren't kidding, either. There are plenty of reports from cardholders who have tested their luck and lost all the bonus rewards they earned.

So, if you downgrade or cancel your card within the first year, you're risking any rewards you earned through the welcome offer. What if you've already used those rewards? The card issuer could still deduct them and leave you with a negative rewards balance. If you still have any cards with that card issuer, the rewards you earn will likely go toward making up that negative balance first.

Credit card issuers frown on it

Whether your rewards are clawed back or not, downgrading or closing a card so soon may affect your relationship with the card issuer. It could blacklist you, meaning you'll be looking at an instant denial if you apply for any more of its credit cards. The card issuer could also shut down any other cards you have with it.

You're better off not burning bridges, especially with top card issuers that have lots of quality credit cards. Even if you're not interested in anything else it offers right now, things may change later. It could release a new credit card with benefits you love. If so, you'll probably wish you had just waited the full 12 months to avoid getting blacklisted.

What to do if you don't want to pay the annual fee

Maybe you're more concerned about paying an actual annual fee than possibly ending up on some secret blacklist. Fair enough. If you don't want the card, there's no reason to pay for it. Luckily, there's often another solution.

Here's what you can do:

• Wait until you've had the card for 12 months and the annual fee is charged.
• Contact the card issuer within 30 days of the annual fee.
• Ask to close the card or downgrade it.

Many card issuers will refund you if you cancel or downgrade within 30 days of the annual fee posting. You can wait 12 months to fulfill any terms, keep the card issuer happy, and avoid it clawing back the welcome offer. And you can still get a refund.

If you want to be sure you'll get a refund, you can look up reports about its refund policy online. The largest card issuers generally do issue refunds if it's within 30 days of when you were charged the fee. But it never hurts to double-check to be sure.

It's fine to get rid of a credit card that isn't right for you. But if you want to play it safe and avoid future issues with that card issuer, give it 12 months before taking action.