Planning to Cancel a Rewards Credit Card in the New Year? Do This First

It takes only a few moments to see if your card issuer will extend a retention offer.

As the new year approaches, you may be trying to decide which credit cards you want to keep in your wallet. If you're not using your credit card often or aren't getting value from the benefits offered, you may decide to get rid of it. But before canceling a rewards credit card, there's something you should do first. Keep reading to find out what you need to know.

Your credit card issuer wants to keep you as a customer

Your card issuer wants to keep you as a customer. If you cancel your credit card, it'll be down one customer, which doesn't benefit the issuer. After all, card issuers make money by charging annual fees, interest charges, and late fees. With more customers, they have a chance to make more money.

An explanation of retention offers

Many of the best rewards credit cards promote attractive welcome offers that incentivize you to apply for and use the cards. But after a few years, if you're not getting value out of a card, you may have to decide if you want to continue using it or if it's time to move on.

In some cases, card issuers will extend a retention offer as an incentive for you to keep using the card. These offers could be in the form of bonus points or miles, a statement credit, or an annual fee waiver. The issuer hopes you will agree to accept the offer and continue using your card.

Note: If your card issuer extends an offer of bonus points or miles, you may be required to hit a minimum spend to earn the rewards, similar to how bonus offers work when you get a new credit card. Be sure to verify all details of the offer and do the math to see if you can hit the minimum spend comfortably.

How to get a retention offer

If you're unsure if you want to say goodbye to a credit card, you may want to find out if you can get a retention offer. Your card issuer may extend an offer to keep you as a customer. If it's good enough, you may want to hold on to the card for the time being.

Here's how to try your luck at getting a retention offer:

1. Contact your card issuer by phone or through online chat.
2. Tell the representative you're considering closing your credit card account.
3. If they extend a retention offer, accept or decline it.

Keep in mind that the issuer may not offer you anything at all. If this happens, you can go ahead and close your account or say you'll give it more consideration and make a choice at a later time.

Do this if you decide to cancel a card with an annual fee

If you have a card with an annual fee and are ready to cancel it, you may want to check to see if the card issuer will downgrade your current card to one with no annual fee. This will be easy to do if it offers no annual fee credit cards. Doing this allows you to keep your account active.

Your credit history is one factor that makes up your credit score. Closing a credit card soon after opening it can hurt your score. Creditors want to see that you have older accounts on your credit report, because it shows that you've been managing your credit for a while. Keeping a credit card account open for several years can improve your credit history and may help you increase your credit score.

If your current card isn't meeting your needs, another card out there may be a better fit. Check out our list of best credit cards to learn more about your options.