Credit card housekeeping: 3 reasons to cancel unused credit cards

If you’ve been religiously playing the miles game, you may have accumulated quite the collection of credit cards along the way.

Whether you got them because of the sign-up bonus, the sign-up gift or simply because you liked the credit card promoter, there’s never a bad time to “Marie Kondo” your credit card collection. 

Why should you cancel infrequently used cards?

“What’s the harm in having too many cards?” you might ask. After all, they don’t take up too much space, and if your wallet’s too full, simply digitise them or put them in your drawer. 

Well, you could, but there are very good reasons why some housekeeping is in order. 

Reason 1: Renew eligibility for sign-up bonuses

Banks reserve their best gifts and sign-up offers for new-to-bank customers. 

For example, Citibank is currently offering new-to-bank customers a sign-up bonus of 37,300 miles when they spend $9,000 on the Citi PremierMiles within 3 months of approval. Existing customers get a sign-up bonus too, but it’s only 24,300 miles.

Citibank defines an “existing customer” as one who currently holds any Citibank credit card, or has done so in the past 12 months.

Fortunately, there is a way to become new-to-bank once more. If you cancel your unused Citibank credit cards and don’t get any new ones within a 12-month period, your status will be “reset” and you’ll be eligible for new-to-bank bonuses once again.

Of course, this only makes sense if you’re not currently using your Citibank credit cards. If you’re an active user, it would be silly to forgo the benefits and perks for 12 months just to reset your status. 

Here’s how long you need to be away from a bank to be counted as “new-to-bank”. Keep in mind this definition may change depending on the promotion in question, so it’s always best to check the specific T&Cs. 

Therefore, if you’re not actively using some of your credit cards, it makes sense to cancel them so you can take advantage of new offers down the road. 

Reason 2: Avoid orphan points

Although one of the fastest ways of accumulating miles is to sign up for specialised spending cards (cards which award bonuses for specific categories of spending, e.g. dining or shopping), there is a danger of spreading yourself too thin. 

For example, I may have an OCBC Titanium Rewards card because it gives me 4 miles per dollar on online and offline shopping. However, if I only shop occasionally, I may not have enough points to transfer to miles.

OCBC requires a minimum of 25,000 OCBC$ (or 10,000 miles) per transfer, and until I hit this minimum block, my points are effectively stuck. This is the problem of “orphan points”. 

So if you find yourself only using a card occasionally, it’s better to cancel it than to add to your orphan points problem every time you swipe. 

Reason 3: Avoid paying unnecessary annual fees

Most credit cards waive the first year’s annual fee automatically, but waivers in the second year are usually based on how much you’ve spent on the card. If it’s just been collecting dust in your drawer, it’s highly unlikely you’ll get a fee waiver. 

So if you’re certain a card isn’t part of your current spending plans, pre-emptively cancelling it can save you some time (and money) later on. 

What should you do before you cancel a card? 

Here are a few points to note before you cancel anything. 

Clear any outstanding balances

Presumably, you’re cancelling a card because you seldom use it, but it’s always best practice to double-check there are no outstanding amounts due anyway.

Remember: Outstanding amounts don’t just include whatever appears on your most recent statement, there may also be pending amounts that have not posted to your account yet. 

Redeem your rewards points

Some banks pool points from different credit cards. For example, if I have a UOB Lady’s Card and a UOB PRVI Miles Card, the UNI$ earned will be held in a single account.

In these cases, cancelling one card (provided it’s not my last card with the bank) does not lead to the forfeiture of any points.

However, other banks may not pool points. For example, if I have a Citi Rewards Visa and a Citi Prestige card, the ThankYou points are held in two separate accounts. This means that cancelling my Citi Rewards Visa will lead to a forfeiture of all my points. 

Before you cancel a card, be sure to find out if your bank pools points (I’ve written a reference guide here) and cash them out if they don’t. 

Will your credit score be affected?

If you carry a balance on some of your credit cards, cancelling a card with a zero balance may negatively impact your credit score nonetheless. This happens because your credit utilisation percentage increases.

Consider the scenario below where John holds two cards, A and B. Card A has a balance of $1,000 and a limit of $5,000. Card B has a balance of 0 and a limit of $10,000.

Card	Balance	Limit	Utilisation
Card A	$1,000	$5,000	–
Card B	$0	$10,000	–
Overall	$1,000	$15,000	6.7 per cent

When John cancels Card B, his total credit limit decreases from $15,000 to $5,000, but his outstanding balance remains the same. This means he is using 20per cent of his credit limit, 3X what he was before!

Card	Balance	Limit	Utilisation
Card A	$1,000	$5,000	–
Overall	$1,000	$5,000	20 per cent

Cancelling a credit card with a long history of on-time payments may also be detrimental to your credit score, so if you’re intending to apply for a loan anytime soon, try to prioritise cancelling recently-acquired cards. 

Conclusion

Given all the credit card roadshows and offers we have in Singapore, no one would blame you if your wallet needed to undergo a bit of a diet!

A regular reassessment of your credit cards will help you cut the clutter, and take advantage of new offers in the future. 

This article was first published in SingSaver.com.sg.