Should You Close Your Travel Credit Card During COVID-19?
TORONTO, April 7, 2021 (Newswire.com) - After a year of avoiding vacations and recreational travel, any travel credit cards you have may be burning a hole in your pocket. Many people have decided to switch over to credit cards that offer more flexible rewards, such as cash back, understanding that their next flight could still be a while away.
However, even for people who aren't planning to fly any time soon, you may not want to close out your travel credit card just yet.
Using your travel credit card for the future
Building up enough travel rewards points or miles for your dream destination or hotel stay takes time, particularly once you've already cashed in your welcome offer.
Come up with your ideal destination and then use your credit card's website to estimate how many points or miles it would take to get you there and back. Then, set that number as a goal before your next vacation actually comes around. Having the flight entirely covered by points or miles can go far in making your dream trip easier on your wallet.
Closing a credit card can lower your credit
Unfortunately, simply closing out old credit cards can result in a dip in your credit. This happens for several reasons, which may or may not apply depending on your situation.
Your credit utilization ratio: This number reflects the total percentage of credit you're using out of the total amount of credit available to you. For example, if you have one credit card with a $2,000 line of credit and $600 owed, and a second card with a $4,000 line of credit and no charges, you currently have a credit utilization of 10%. However, if you close that second card, your credit utilization ratio will go up to 30%. In general, it's best to keep this number below 30%.
Your credit mix: Credit bureaus prefer to see that you have a variety of lines of credit. If this is your only credit card, this may lower your credit score.
Average account age: If the card you're looking to close is your oldest credit card, closing it out will lower your average account age, which has a negative impact on your credit score.
Opening a new card: If you plan to open a new card in place of your current card, that has its own minor credit penalty. Credit card applications create a "hard pull" on your credit score, which typically causes a small dip of about 5 points.
Weigh the value of the annual fee
The downside to keeping a credit card open is possible fees that come attached to your card. Premium travel cards can have annual fees in the hundreds of dollars, which may feel painful when you're not enjoying the perks of exclusive airport lounges and no foreign transaction fees.
If the annual fee seems unaffordable, or it simply isn't earning its keep, you may be able to change your credit card to a different card that your issuer offers.
This solution helps avoid most of the potential credit penalties of closing a card — your average account age won't decrease, and it also keeps your current card's payment history. You may also be able to take the reward points you've earned with you, but that depends on the cards you're switching between.
Look at your credit card issuer's offerings and see if they have a card without an annual fee that interests you.
After you've found the new card that matches your current needs, call your card issuer and ask them to make the switch. Most card issuers will be happy to help you find a better suited card, rather than losing your business entirely.
Source: iQuanti, Inc.
Categories: Personal and Family Finances