By Steve Lobell
One of the most frequent questions I get is how to avoid paying annual fees on credit cards. Closing credit cards can have a negative effect on your credit score, so most people should try to avoid that option. For starters, closing a credit card means lowering your overall credit limit and thereby increasing your debt to credit ratio, which has a big impact on your score. Plus, your credit score takes into account the age of your credit cards. The longer a credit card is opened, the better. Closing a card truncates the age of a credit card, negatively affecting your score.
So if you shouldn’t close your credit card after you’ve cashed in on the sign-up bonus, how do you get out of paying the annual fee?
The first thing you should do is call your credit card company and explain that you no longer want to keep the card open because of the annual fee. Explain that you’d love to keep the card, but simply cannot because of the annual fee. You’ll probably be transferred to the “retention department.” They might offer to waive the fee for that year or give you bonus points. If they don’t offer that, you might as well hang up and call again, as each agent you speak to will likely give you a different answer. If, however, after three tries you’re still not getting the answer you want, it’s probably time to move on to the next step.
If the agent won’t waive the fee for you, the next step is to downgrade your annual fee credit card to an annual fee-free credit card. Since many banks offer the same or a similar credit card with and without annual fees, this is quite simple. For example, if you opened the Chase Sapphire Preferred Credit Card with a $95 annual fee, you can downgrade to the Chase Sapphire Credit Card, which has no annual fee. Search online for the no-fee version of your card, and offer to downgrade to it.
A more advanced option is to apply for a new credit card and immediately call the bank after applying to ask for the credit limit on your current card to be moved onto your older card. Of course, if you do this you will have another inquiry on your credit report, which can also have a negative impact on your score, but the negative effect is somewhat negated by the new signup bonus! With many banks, you can also send them a secure message through their website and ask them to transfer the balance from your annual fee card to the annual fee-free counterpart, either by downgrading to one of your existing cards or by opening a new one. The bank will usually keep your old annual fee card open for about 60 days or so and then close it automatically. When this procedure is followed, your score isn’t affected because your credit line is just transferred instead of being canceled.
Note: Closing business credit cards has been reported to not affect your credit score, so these procedures can be disregarded for business credit cards.
Here’s how to reach each bank:
Chase: You can secure-message Chase or call the Credit Reallocation line: 888-298-5623 (Consumer); 800-453-9719 (Business)
American Express: 866-314-0237 (Application Reconsideration)
Citi: You can secure-message Citi or call 888-201-4523 (New Application Approval Status) if you are transferring the credit to a new annual fee-free card. Call 800-763-9795 (Credit Department) if you are transferring the credit to an existing annual fee-free card.
Barclays: 866-408-4064 (Application Reconsideration)
Bank of America: 866-458-8804 (Application Reconsideration)
Capital One: 800-955-7070
Discover does not currently offer annual-fee credit cards, so there should really be no incentive to close your Discover cards. If you have one of the old Discover cards with an annual fee, call Discover at 800-347-2683 or send a secure message requesting a downgrade to the Discover It Card.
If you have any questions, hit the comments section on Dealspin.com! We look forward to seeing you. v