When to Cancel a Card (And When Absolutely Not To)
Cancel a card when the fee exceeds the value. Do not cancel a card that is your oldest account. That is the entire framework.
The Two Things That Hurt Your Score
Canceling a card hurts your credit score through two mechanisms. First: it reduces your total available credit, which increases your overall utilization ratio. If you have $15,000 in available credit across three cards and cancel one with a $5,000 limit, your available credit drops to $10,000. If you carry $1,000 in balances, your utilization goes from 6.7% to 10%. That is a score reduction.
Second: if the canceled card is your oldest account, your average account age decreases. Account age is 15% of your FICO score. Reducing it by 2+ years can cost 10-20 points.
When to Cancel Anyway
Cancel when the annual fee exceeds the card's value to you. A card with a $95 annual fee that you use once a year for $30 in rewards is costing you $65. Cancel it. A card with a $325 annual fee where you use $340 in credits: keep it. The math has to work.
Before canceling any fee card: call and ask for a retention offer. Many issuers will offer statement credits or waive fees for loyal customers who threaten to cancel. This is a free call worth making.
The Credit-Safe Cancel Strategy
If you want to close a card without hurting your score: request a product change first. Chase will move you from Sapphire Preferred to Freedom or Freedom Unlimited — you keep the account history and the credit line, you lose the annual fee. Amex will move you to a no-fee card. Ask your issuer what's available before closing.
If you must close: do it when your other accounts are old and your utilization is low. The impact will be smaller when you have a 4-year average account age and 8% utilization than when you have a 1-year average and 25% utilization.