A common bit of conventional wisdom is to never close a no-annual-fee credit card. Frankly, most of the reasons for this are pretty valid. Having more overall credit is certainly a positive for your credit score and often has the added effect of decreasing your usage percentage (since you’re using the same amount of credit but have more of it available). Certainly anyone who is just starting out with credit in general – or people who have limited credit or any sort of negative issues in their credit history – would almost never want to sacrifice an open credit line that costs nothing.
But is there a time where closing a credit card, even one without an annual fee, could be useful?
The Advanced Credit Card Churner
There are advanced players in this game who have a lot of credit, a lot of cards, and a long credit history. I’m talking at least six figures in open credit lines, over 20 active cards at any given time, and a decade or more of credit history. Most of the time those credit lines sit empty, or with nothing more than a regular month’s balance on them. Even for those manufacturing spend at a high level, paying off the bill in full a few days before the statement posts is an easy way to maintain a nearly zero balance on all open credit lines and a utilization ratio near 0%.
So for a player like this, a small drop in their available credit isn’t going to make a huge difference to their score. If you have $225,000 in credit and you close a card with a $5,000 credit line, the decrease in your overall credit to $220,000 will likely have almost no effect on your credit profile. Nor is your utilization ratio going to increase dramatically.
Yet why would someone close a no-fee line? A decrease to your overall credit, even if only by a small amount, is still a negative. Besides, conventional wisdom says you can use those extra credit lines to negotiate with a reconsideration agent, moving credit around to make room for a new card or trading one old card for another.
But wouldn’t it be nice to avoid that reconsideration call altogether?
Reconsideration calls aren’t the most painful experience you’ll ever go through. It’s not like getting a tattoo or having to attend a Jonas Brothers concert. But most people don’t particularly enjoy the process, especially if you happen to be in the middle of an app-o-rama and know you’re going to have to explain those 5 same-day apps at the other banks along with your 7 other open Chase cards and why you really still need that new IHG card and, yeah, you do already have the Visa version but the MasterCard is absolutely required for your international travel needs, and so on and so on and suddenly a live rendition of “Burnin’ Up” might not seem that awful after all.
There might be a few people who claim to enjoy the challenge of the reconsideration call, but I have yet to meet anyone who was terribly disappointed by an instant approval. So how can we improve our instant approvals?
The Devil’s Advocate says closing unused credit lines might help you get more instant approvals.
Assuming you have a 720+ credit score and profile, there are three main reasons you might not get an instant approval – you have too many inquiries, you have too many cards, or you have too much credit.
You can “time” your inquiries to some degree but you can’t reduce them other than by applying for fewer cards, and who wants to do that? But you can affect the other two variables in one simple way – close unused credit cards. By doing so, you’re reducing both the number of cards you’re already holding from any given bank, and also lowering your risk profile by decreasing the overall amount of credit that bank has already extended to you.
But if you close a credit line, you’re not leaving yourself anything to negotiate with on the reconsideration call, right?
Well, the whole point is to avoid the reconsideration call in the first place. But even if you don’t get an instant approval on a new application and have to call reconsideration, what makes you think you’re “negotiating” with a giant multinational bank? Let’s face it – these banks have established policies and desired customer profiles, and nothing we say on a call is going to convince them to break their rules. Yes, an agent might have a little wiggle room if it’s a borderline case, but if you don’t fit their risk profile, you ain’t getting the card. You might think you’re clever by keeping that Citi Dividend card open so you can eventually trade it for a new Executive AAdvantage card, but odds are you’re not really improving your situation.
Banks have a set amount of credit they’re willing to issue you based on your income, debt, and credit profile. Assuming none of those variables have changed (meaning you didn’t lose your job or half your income), the amount of overall credit they’ll issue to you doesn’t change based on how much of that credit you already have. Your limits are tied to you, not to your existing lines or how many cards you have open.
Let’s look at some real life evidence of this happening right now. Recent data points on FlyerTalk indicate Barclays has been reluctant lately to open additional cards beyond the first or second card. So what are people reporting as the best way to get around that restriction? Call and ask for your credit lines to be lowered, as Rapid Travel Chai discussed just last month. By doing so you’re effectively giving Barclays’ computers more leeway to issue you another card, since your risk profile indicates you can handle more credit.
I can also speak to this personally. Roughly six months ago one of my Bank of America cards was closed for lack of use. Bank of America was nice enough to give me absolutely no warning that they were going to close the card. But since I wasn’t using it and had 3 other Bank of America cards, I didn’t really care, though it did reduce my overall credit lines by about $16,000. Then about 60 days later, I applied for a new Alaska Airlines card.
Result = instant approval. Credit limit = $16,000.
Granted, this is anecdotal evidence (though now that it’s a blog post and on the internet, it somehow becomes scientifically valid and that’s what’s great about America). But the point is that closing your lines or cards isn’t going to change the amount of credit or number of cards you can get. So lower those lines, close those cards, and see if you can avoid the reconsideration game.
Last Week’s Recap – App-O-Ramas
If you missed it, last week we had a great back and forth in the comments about app-o-ramas (see “App-O-Ramas Are Your Father’s Oldsmobile“). Commenters Zozeppelin and Nicky made points that I think are worth some further discussion about the advantage app-o-ramas can have on the number and timing of your credit inquiries (as opposed to their effect on your credit score).
Let’s assume for a moment that you’re applying for 12 credit cards a year. Under the app-o-rama method, you do them in 3-card bunches every 91 days. Under the one-card-a-month method, you do them… well, once a month, or roughly every 31 days. If we assume that a particular bank only takes into account your inquiries over the past 90 days (we’ll call it the “look back” period), then under the app-o-rama method each time you apply for 3 new credit cards at the 91-day mark, the previous 3 inquiries would no longer be “seen” by the bank. However, under the one-card-a-month method, the bank would still “see” two of your previous inquiries (the inquiry from the first month would already be beyond the 90-day period). We can scale this example up or down as far as number of cards or length of the “look back” period, but as long as you were methodical about applying at exact intervals, the app-o-rama method would generally show fewer inquiries on the day of your applications as opposed to the one-card-a-month method.
Based on that data, it would appear the app-o-rama method has an advantage. But there’s two problems with looking at it this way. First, we’re only guessing at what a particular bank’s “look back” period is for inquiries. Unlike a credit score where we can predict from past data that the effect from any given hard inquiry will drop away in about 3 months, we have no idea what the exact policies are of any individual bank. It might be 90 days, or 6 months, or a year, or anything in between. It also undoubtedly varies from bank to bank. Without that very important piece of information, creating a methodical app-o-rama schedule based around a 91-day application period – or any other period – isn’t particularly useful.
The other problem with this method is that it only gives you an advantage for the very first application on the day of your app-o-rama. Since we established last week that banks can see your same-day inquiries, by the time you get to your last application of the day, you’d have exactly the same number of inquiries in the “look back” period as you would under the once-a-month method. You might even be worse off from a bank’s point of view because they can see you’re applying for multiple cards on the same day.
Now maybe having fewer inquiries for that very first application of an app-o-rama is worth it to you. But as we talked about last week, before you make that decision, consider the flexibility you’re giving up in exchange for that advantage. It might be worth the tradeoff, but make sure you know what it is you’re trading for.
If you’d like to add to the debate about app-o-ramas, please feel free to add your thoughts in the comments on last week’s post. Or as always, join us for discussion about this week’s topic in the comments below. The best part of Devil’s Advocate is the debate!Devil’s Advocate is a weekly series that deliberately argues a contrarian view on travel and loyalty programs. Sometimes the Devil’s Advocate truly believes in the counterargument. Other times he takes the opposing position just to see if the original argument holds water. But his main objective is to engage in friendly debate with the miles and points community to determine if today’s conventional wisdom is valid. You can suggest future topics by sending an email to firstname.lastname@example.org.