Your credit score is made up of many parts and one of the major parts is your length of history. While having more accounts open is generally good the problem with opening more cards is that it can cause you to cancel cards to avoid annual fees – as most cards waive the annual fee for the first year. Thus it is enticing to sign up but costly to keep your accounts open. The problem with this is that the part of the credit score dealing with length of history is derived mostly from how long your oldest account is and your average account length. Closing all your cards after one year may save more money now, but is less beneficial in the long run.
Closing some or at times most of your accounts is not necessarily a bad thing but it’s a case by case kind of thing. Really, it’s about average length and old accounts (which also affects average too). If you have a 15 your old credit card, canceling two cards after one year brings your average down to less than 6 years, but understand that is actually a really good average. This is why it is important starting out to get cards with no annual fees. Because no matter what the benefits of the card are, I have no reason to close my oldest accounts because there is no annual fee. However, if I were to cancel my first cards after one year, I am making it really hard to bring up my average.
So I think of credit cards in terms of three categories:
- No annual fee.
- Cards I pay the annual fee for passive or annual benefits and/or retention bonus.
- Cards I cancel after a year.
Even before I apply I think about what I will do with the card in the long run. Today we’ll talk about the second category – cards I pay the annual fee for, because of the:
- Annual benefits.
- Passive benefits.
- Retention bonus.
We’re particularly interested in the annual benefits and less concerned about retention bonuses as they are less predictable. What I’m proposing is that we should think about our average lengths so much that we consider keeping some cards open that we would normally close. Again, it’s best to get some cards without an annual fee as a newbie, but for those of us who have those old no annual fee cards and are mostly getting bigger, better cards, consider keeping some with good annual bonuses.
For example, the Marriott card does very little for me and is not my daily spender and therefore you would think that I would cancel the card after the first year. But because of the number of accounts we recently opened it seemed best to keep open cards we would normally cancel. In the case of the Marriott card, I could perhaps use the certificate given every year to stay at the JW Marriott Shanghai later this year which goes for $250 a night. Easily worth the $85 annual fee but mostly I want to protect my credit.
After all, even if I break even or come out ahead on the $85 annual fee that the Marriott card has it doesn’t actually save me $85. Most likely I would have used points with another hotel or found something cheaper (at least I can in China). This site is about finding ways to not have to pay for travel. So I’m not suggesting that you keep the Marriott card for the sheer value of a free night at a category 1-5 Marriott hotel but instead consider the value of a great credit score. Chances are that if you have a really great score (over 740), you don’t really have to think about these things as much but instead you can get by with keeping good history and on time payments. But for those of us who have been a little eager with opening new accounts or if you just have newer credit, be mindful of the things that make your credit score.
Yes, length is a small part of your score and history is a bigger factor. Just by having more open accounts you could be building your score by proving yourself as someone who can handle more credit. Still, we want to aim for great credit. This is why I list all the cards that have annual benefits to the card.
Obviously you may be more inclined to keep some cards more than others as you may have better use for that product or have some sort of loyalty with a brand. Someone who is a Platinum with Marriott (which all could have free Marriott Platinum Status) may get more value at a JW Marriott stay as they get lounge access and possible upgrades. And someone who flies on United regularly might want to keep the United card for the free bags, extra points for the spend, boarding benefits, etc… On the flip side, someone who does not fly on United would have no use for such benefits.
I assume that if you’re flying 100,000 miles a year on United you already know/have the United card and it’s benefits. So this list is mostly the benefits that are a little more substantial.
- Marriott Card – $85 annual fee
One category 1-5 free night certificate.
- US Airways Card – $ 89 annual fee
Two Companion Pass Tickets ($99 for up to two companion tickets).
One US Airways Club Pass.
- Hyatt Card – $75 annual fee
One category 1-4 free night certificate.
- United Card – $95 annual fee
Free checked bags.
Two United Club Passes.
10,000 bonus miles every year you spend at least $25,000.
- Southwest Card – $99 annual fee
6,000 points (worth $100)
- Amex Platinum Card – $450 annual fee
$200 toward airline fees.
Access to Priority Pass lounges.
AMEX Fine Hotels & Resorts benefit.
- British Airways – $95 annual fee
Travel Together Ticket every year you spend $30,000 in a calendar year.
- Fairmont Card – $95 annual fee
One complimentary night each anniversary year that the Cardmember makes $12,000 in purchases with their card.
Of course all cards have some kind of passive benefit, even if it’s just the points they earn for spending. The first five are definitely cards I would consider keeping. However the last two are conditional annual benefits and the value is a little less obvious. I do not recommend keeping the British Airways card for a number of reasons. While the Platinum Card has great annual benefits, I similarly recommend canceling the card as the benefits are stronger for the first year.
Again, especially for the first 5 cards, I would recommend keeping some of these cards for at least a second year if your credit score could use some help in some way. Consider your average length of an account and try to grow that average.