annual fees

How to Get Rid of Your Credit Card's Annual Fee

Dan Rafter — Mon, 19 Nov 2018 08:00:13 +0000

You look down at the credit card in your hand. It's one of your older cards, and you've bought plenty with it. The problem is, it charges an annual fee, and you're sick of paying it. You're tempted to cancel the card to eliminate the fee altogether. But you know doing so will hurt your credit score.

Should you cancel your card? Or should you continue paying that annual fee when you could easily find another credit card that provides a generous rewards program without any annual charges? (See also: 8 Fees You Need to Stop Paying Right Now)

Why you shouldn't cancel your card

It can be tempting to cancel any credit card that charges an annual fee, especially if that fee is a big one. But canceling a credit card can hurt your credit utilization ratio. This ratio measures how much of your available credit you are using at any one time. The more credit you use, the more your credit score will drop.

When you close a credit card, your credit utilization ratio will automatically increase, even if you don't make any new purchases. Say you have three credit cards with a total of $15,000 of available credit. You are using $5,000 of that $15,000 in available credit. If you close one of those three cards — the card with a credit limit of $3,000 — you're left with a total credit line of $12,000 rather than $15,000, ultimately increasing your credit utilization ratio. This is why financial experts recommend keeping credit card accounts open even if you aren't using them.

The age of your credit matters, too. The older your credit, the better it is for your score. So if you close an older card, even if it does charge an annual fee you'd rather not pay, you will also hurt your credit score.

How to get rid of that annual fee

How, then, can you get rid of that annual fee without damaging your credit score? You'll have to call your bank and negotiate.

Some banks will agree to downgrade your credit card's annual fee and move it to another card that doesn't charge any fees, or at the very least, offers a lower annual fee. Doing so won't hurt your credit score because you'll maintain your existing credit limit and you won't be closing an older credit card.

Why would a bank approve such a downgrade? Mainly because it doesn't want to lose you as a customer. If you tell customer service that you are considering canceling the card if the annual fee doesn't go away, many credit card providers will agree to a downgrade. They'll earn more money from your continued business than they would have from that annual fee.

It helps, of course, if you always make your payments on time. Your provider will be more interested in retaining your business, too, if you actually use your card on a regular basis. If you haven't made a purchase on your card in months, your provider might be less likely to approve your request for a downgrade.

When you downgrade to a card with no annual fee, you will lose out on perks the original card offered. Your new rewards program won't be as strong. Your new card might not have a rewards program at all. If that's worth dumping the annual fee, though, downgrading your credit card might still be the smart financial move. (See also: How to Decide if an Annual Fee Credit Card Is Worth It for You)

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This article is from Dan Rafter of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

What Is a Rewards Credit Card?

Jason Steele — Wed, 22 Aug 2018 08:00:10 +0000

The credit card industry is intensely competitive, and profitable. In order for them to remain profitable and attractive to consumers, banks and credit unions offer cards that return something of value for each dollar spent. These credit cards have come to be known as rewards credit cards.

What rewards cards offer

A rewards credit card will give the customer a percentage of their spending as cash back. Depending on the card issuer’s rewards program, the cash back can be received as a statement credit, a bank deposit, or a credit to purchase gift cards and merchandise.

There are also travel rewards credit cards that offer rewards points or miles. This kind of loyalty program may be offered by the card issuer, or it may be with a co-branded partner such as an airline or hotel chain. Customers are then able to redeem their points and miles for a variety of rewards through that company. For example, credit card points can be redeemed for free stays in a hotel, while airline miles can be redeemed for award flights according to the airline’s frequent flyer program. (See also: Cash Back vs Travel Rewards: Pick the Right Credit Card for You)

But cash back and points aren't the only perks card issuers offer. Many cards come with a welcome bonus as an incentive to open a new account. Typically, these offers require you to meet a minimum spending amount to receive the bonus. For example, some cards offer 50,000 points or miles after spending $3,000 within three months of opening the account.

These credit cards will also offer extra rewards for your spending. Some cards offer a fixed amount of points, miles, or cash back on all purchases, while other cards will offer increased rewards on purchases from select merchants or categories. And some cards will cap the amount of bonus rewards you can earn each quarter or year. (See also: The Best Cash Back Credit Cards)

How to get approved for a rewards credit card

The most competitive rewards credit cards are offered to applicants with the strongest credit history and the highest credit scores. Someone who is new to credit cards, or has had credit problems in the past might not qualify for a premium credit card that offers the most valuable rewards for spending.

However, there are some rewards credit cards that are offered to those with good or average credit, rather than excellent. In fact, there are even a few subprime and secured rewards cards designed for those with poor credit that still offer nominal rewards. The rewards these cards offer won’t be as generous as those from cards offered to applicants with excellent credit, but it's better than nothing.

What are the annual fees for rewards credit cards?

Rewards credit cards can have no annual fee, or they can have annual fees of hundreds of dollars. Since many credit card users would prefer not to pay an annual fee under any circumstance, credit card issuers will typically offer several rewards credit cards with no annual fee.

There are also premium rewards credit cards that have several levels of annual fees. There is a large market for credit cards with annual fees of under $100, including cash-back cards, and those that offer points and miles with airlines and hotels. Next, there are the premium cards that offer annual fees above $100, with several of these products charging annual fees of $450 or more.

How points and miles work

Many credit cards offer rewards in the form of points or miles, and these artificial currencies can be generated by the card issuer or one of its co-branded partners. Some card issuers also allow their rewards to be transferred to points or miles with airlines and hotels. With most rewards credit cards, however, the card issuer will allow you to earn points or miles with a third party, such an airline, hotel chain, or retailer.

Once you receive those points or miles, they are now in the account of the third-party partner, not the credit card. You will retain those points or miles even if you cancel your card, and the rewards are now subject to the terms and conditions of the company that they are with. You will be able to redeem your points and miles according to the terms of that program, and the points you earn from your rewards credit card will be added to any other points you have. For example, if you earn airline miles by traveling on a certain carrier, you could also earn miles from using their co-branded credit card. The miles from both your travel history and your credit card rewards both go into the same frequent flyer account, and you will retain these miles even if you decide to close your credit card account.

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This article is from Jason Steele of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

7 Credit Card Reward Tips Many People Don't Follow

Craig Ford — Tue, 24 Jul 2012 10:24:37 +0000

As someone who advises a lot of people about credit card rewards, I'm often surprised by what the average person forgets to do when it comes to their rewards credit cards. Here are some helpful tips for making the most of your card rewards. (See also: 5 Best Travel Rewards Credit Cards)

1. Conduct an Annual or Bi-Annual Rewards Card Audit

This is the biggest mistake people make. Ten years ago, you might have done some research and found that card XYZ was the best card (according to your needs) on the market. The result is that 10 years later, you're still using the same card.

Credit card rewards earning rates and redemption benefits change. New card offerings can easily make old card offerings obsolete. Recently I was talking with a relative about his use of a certain card, and I realized that by re-evaluating the current card offerings, he would be able to earn an extra $100-$200 per year.

2. Don't Chase After Rewards When Payments Are Costing You More

It's human nature to think that we're smarter than most other people, and it's amazing the number of people who carry a balance on their rewards cards, thinking they are doing something smart because after spending $10,000, they get a $100 reward. The problem is that the $100 reward is costing them $1,000 in interest . That simply doesn't make sense.

3. Don't Use a Point Card If the Value Is Less Than a Penny Per Point

Personally, I'm a big fan of airline and hotel points. I find that our family can easily get a 2-5 cent value out of each dollar point we spend on different credit cards. However, there are a lot of people who will redeem their points at below even a .05 cent value. That's a bad idea. If you're not going to redeem your points for valuable items, then you should just use a straight cash back card that will at least give you 1-2% on every purchase. If you're earning less than 1% value from your points, it's time to consider a new card. (See also: 7 Biggest Mistakes When Redeeming Credit Card Rewards)

4. Always Know the Most Valuable Use of Your Points or Miles

Free is good, but more free stuff is better.

You can use your points to buy things like an iPod or get a gift card, but without evaluating the value for each point you're getting, you could be missing out on a much higher payout for your hard earned points. For example, getting an international fare with your points will almost always net you more value per point than a gift card or cash out. Most credit card won't expire your points as long as you keep your card active, so there's no harm in waiting to accumulate enough points to get that dream getaway, rather than quickly redeeming for a small item. (See also: Are You Wasting Your Credit Card Rewards?)

5. Develop a Credit Card Spending Strategy

If you own more than one rewards card, do you know which is the best card to use for specific situations? Certain cards offer extra points for gas, office supplies, restaurants, travel, and other specific categories. You must know the best ways to use your cards.

Right now I have three cards that I rotate. How, when, and where I use them is determined by the rewards potential by each use. A spending strategy doesn't just consider rewards, but other benefits like warranty coverage, rental car benefits, and foreign currency exchange fees.

Some cards offer one additional year of extended warranty coverage, so use those to buy electronics. When renting cars, you should give consideration to cards that offer primary rental car insurance. And you don't want to spend a few thousand dollars on your vacation overseas only to find out that if you used a different card you could have saved hundreds of dollars in foreign currency exchange fees. Be sure to use a 0% foreign currency exchange credit card when traveling overseas.

6. Don't Overlook a Rewards Card Simply Because It Has an Annual Fee

If you can get a good rewards cards that doesn't have an annual fee, then that's great. However, I've known people who could earn a lot more points by using a rewards card with an annual fee, but they refuse to do it out of principle, even when the rewards value far outweighs the annual fee cost.

Don't pay an annual fee if you're not going to get more rewards for doing so. However, I've advised a lot of people to get an rewards card with an annual fee because they'll actually end up with more rewards value than the cost of the annual fee.

7. Focus on Diversity in Card Brands

Different issuers offer different benefits with their cards. One company might include special purchase protections while another various insurance you can take advantage of while you're traveling. Often, the rewards are not just spending bonuses, but special discounts and access for cardmembers. (See also: Awesome Credit Card Perks You Didn't Know Your Card Offers)

This article is from Craig Ford of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread:

Credit Card Fees: Hidden and Otherwise

Nora Dunn — Sun, 23 Dec 2007 23:14:26 +0000

Annual fees, grace periods, balance transfer options…it's a wonderful world of credit card jargon out there, and depending on your needs and planned uses for credit cards, it pays to look at your options.

Following are the various ways in which credit card companies can get some money out of you:

Interest Rates

All credit cards levy an interest rate, the main difference being the percentage charged. Obviously you want to choose the card with the lowest rate. If you already have a card with a higher interest rate but that you like for other reasons, then try calling and asking for an interest rate reduction. According to a 2002 Public Interest Research Group study, 56% of people who called their credit card issuer and asked for a reduction were successful.

Early Interest Posting Dates

If you are in the market for a new card, find out if interest is charged from the date the charge is posted, or the date of purchase. Most will now charge from the date of purchase (which is usually a few days earlier than the posting date), but if you can find one of the other kind, it may be worthwhile.

This is only really an issue if you plan to carry a balance on your credit card at any time, which if it can be avoided, would be preferable.

How Interest is Calculated

Some cards will charge interest on the balance owing at the month or billing cycle's end. Makes sense, right?

Well, there is a growing trend now to charge interest instead on the average daily balance. So if you charge $1,500 in September, and pay $1,000 of it off on the due date, the following month you will actually be charged interest on the $1,500 average daily balance instead of the actual $500 left owing.

Grace Periods - or Lack Thereof

Usually, a grace period will allow for a responsible credit card user to pay off all their purchases within 24-30 days without paying any interest.

But as some readers pointed out in the comments on another article, even those dutiful credit card users who pay off their balance in full each month can sometimes get duped by circumstance (like the bank processing a transfer late) and miss the payment due date by a sliver.

For those people above and for those who regularly carry balances, even grace periods won't save you: if you have an outstanding balance, you are charged interest on new charges from the date of purchase. (All the more reason not to carry a balance)!

Nuisance Fees

In a world of increasing fees for every little thing from booking airline tickets to doing your banking, credit cards are no exception to this bandwagon. The latest in nuisance fees can include:

Late payment fees (as high as $40)
Over-the-limit fees (as high as $25)
Inactive account fees
Not carrying a balance fees (or carrying a balance under a certain amount)
Monthly fees that are a percentage of your credit limit
Annual flat fees
Balance transfer fees
Credit limit increase fees
Set-up fees
Return item fees
Fees for paying by telephone

…and on it goes.

Cash Advance Interest Charges

Many cards charge higher interest rates on cash advances in addition to transaction fees.

What They Have to Tell You About

When you are searching for a new credit card, the following items are required by law to be disclosed:

Annual Interest Rate (also called annual percentage rate or APR)
The teaser or introductory rate, along with the details of when and how the regular rate kicks in
How the variable rate is determined (if applicable)
Penalties for late payments
Annual, periodic, or membership fees
How the balance is computed for interest purposes (ie: average daily balance or balance owing methods)
Minimum charge
Grace period (the period of time you have to pay off the balance without incurring interest)

My Card Sucks! I Want To Cancel

If after reading this you think you have one of those cards with too many fees, you can cancel it. However, there is a chance that it may reduce your credit score. Check out FICO to find out what FICO scores consider, as well as how best to understand your credit score.

To that end, you should be aware of soft and hard closes, and how they affect you.

Soft Closes

With a soft close, the credit card company will acknowledge that you want to close out the card, but they will automatically reactivate it if charges go through. Their rationale is that they are saving you embarrassment of the card being rejected if you happen to be out shopping and inadvertently whip their card out!

Hence, a soft close will also often affect your credit score and ability to qualify for large loans later on if the lender does a credit check and sees that you have all sorts of credit available to you, but doesn't see that the credit is soft closed.

It also makes you vulnerable to fraud, since if a professional steals your identity, they can order another card from a soft-closed account and start charging.

Hard Closes

Ensuring your account is hard closed entails a little more follow-up work, but can pay off in the end. You must first request a hard close when you are cancelling the card, and follow up with a confirming letter. In your letter, tell the credit company to report "closed by consumer" to the credit bureaus as well, and keep copies of everything.

Some issuers will refuse to do this: their policy might instead be to process a soft close first and a prescribed time period, at which point it reverts to a hard close. Find out how long that period of time is, and ensure that the account is hard closed with a letter at the end of that time.

This article is from Nora Dunn of Wise Bread, an award-winning personal finance and credit card comparison website. Read more great articles from Wise Bread: