When to Keep a Rewards Credit Card and When to Move On

How to know when it’s time to break up with your rewards card

A woman seated at a desk with a laptop before her stares into the distance and considers whether or not to keep her rewards credit card.
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 Thomas Barwick / Getty Images

Once the thrill of a new cardholder bonus has worn off and you’ve maxed out every possible promotion, you may be wondering whether it’s time to close your rewards card and move on—especially if your card charges an annual fee. 

The answer depends on how well the card fits your lifestyle—and whether you’re still earning a good return from the cash back, points or miles offered. 

If your card charges an annual fee, you may be tempted to close the card before the annual fee is due so you can chase a promotion on another card. But this tactic, known as churning, can be problematic. Many banks have limitations on how many new cardholder bonuses you can get on their cards, or may even deny your application if you’ve opened more than a few cards—including with other banks—in the past two years.

Rather than chase cards solely for their incentives, you’re better off taking a more mindful approach to the cards you own. Here’s how to tell whether a rewards card is a keeper—or whether it’s time to move on to another card. 

Keep It

  • Earning rewards is easy

  • You enjoy using the credit card

  • It offers rewards you know you’ll use

  • You can easily afford it

Move On

  • You can’t justify the annual fee

  • The rewards don’t match your spending

  • You’re too intimidated to redeem your points

  • You can’t afford to take advantage of its perks

  • You’re no longer having fun with your credit card

Signs That You Should Keep It

Is it still a good fit for your wallet? Maybe.

Earning rewards is easy. The best rewards cards are the ones that match your spending habits so seamlessly that you wouldn’t have to change anything about what you buy, or where you buy it, to earn a good return. On the other hand, if you’re missing out on points, miles or cash back because your lifestyle no longer matches your card, it’s probably time to look for a new one. 

You enjoy using the credit card. When rewards cards are a source of fun, instead of stress or boredom, you’ll likely get more use out of them. Some cards are perfect for the low-maintenance type who doesn’t have a lot of time. And some require more work to maximize their earnings; you may need to navigate a complex travel program or carefully strategize your spending. The latter may sound like a drag to some, but if you’re the competitive type who enjoys putting effort into getting the best possible return, then a more elaborate card may be a great fit. 

It offers rewards you know you’ll use. You’re more likely to take full advantage of your rewards card if you know how you want to use your earnings. Having a goal for those points or miles (a trip to the Bahamas or $500 for your child’s college savings account) will not only help motivate you to use your card strategically, but make you more likely to use your rewards before they expire. 

The perks match your lifestyle. Cards that require a significant financial commitment (an annual fee of hundreds of dollars) often come packed with valuable benefits. If the rewards you earn at least offset your annual fee, then the perks are one way to assess the card’s value. If you’re a frequent traveler, for example, then a card that pays for your carry-on luggage or for a fourth night stay at a hotel may save you some real money. A premium rewards card may also be worth keeping if it improves your quality of life. For example, traveling may feel less stressful if you can escape to an airport lounge before a flight or score a free massage at a resort. 

You can easily afford it. You should only hold onto a rewards card if you have more than enough room in your budget to pay the annual fee. You should have enough spending power to earn far more in rewards than what you’ll pay in the fee. And that good return shouldn’t come at the price of stretching yourself too thin. 

To gain more insight into your spending and what kind of card works for you, consider using a budgeting app that links to your cards and uses colorful graphs and charts to highlight what you buy most often. 

Signs That You Should Move On

Has it become more of a hindrance than a help?

You can’t justify the annual fee. Take a moment to tally up the value of the rewards you’ve earned over the past year, along with the benefits you’ve used. If the value of those perks don’t cover the cost of the annual fee and then some, then the card’s no longer a good value. It’s also worth considering any upcoming lifestyle change that could affect your card usage. If you’re expecting a baby, for example, you may not travel as much over the next year or you may eat at home more often.

The rewards don’t match your spending. A card that offers bonus points on a high-value spending category, such as dining or travel, may sound good in theory. But, in reality, you could be surprised by how little you earn—especially if you’re a fairly average spender. If you only travel domestically a few times a year, for example, and spend roughly $500 per ticket, a card that offers triple points on airfare may only net you $30 worth of rewards. Similarly, if you dine out once a week, charging $50 per meal to a card that pays 2% cash back at restaurants will earn you only $52 for the year. 

You’re too intimidated to redeem your points. A card is also a poor fit if you never use the rewards you’ve earned. If you keep putting off redeeming your points because the process seems too complicated or confusing, then you’ll be happier with a simpler card. 

You can’t afford to take advantage of its perks. Many rewards cards offer lucrative perks, such as credit toward the cost of hotel activities or discounted airport lounge access. But the cost to access those perks may be too steep for you to use them. For example, a card may offer special perks at participating resorts, but if the properties are well beyond your budget, the perks won’t be of much use to you.

You’re no longer having fun with your credit card. Finally, one of the most important factors to consider is whether you’re still enjoying your rewards card. Do you still feel a strong desire to use it? Or do you find yourself looking wistfully at more exciting cards? If you’re feeling bored by a credit card, then it may be time to close it and move on.  

To get a rough idea of your likely earnings, estimate your annual spending in a given rewards category, then multiply that figure by the earnings rate (in the case of miles or points, the number offered per dollar; in the case of cash back, the decimal equivalent of the percentage offered). If your rewards are not cash back, multiply the result by $.01, a typical rewards point value.

Things to Think About Before You Close That Account

Closing a credit card account can hurt your credit score, so consider your situation carefully before making any moves. If you decide to replace your rewards card, it may be better to just stop using your old one, rather than closing it.

First, you could negatively affect your utilization ratio—the percentage of your total available credit divided by any balances you may carry by—by reducing that total credit figure. (Generally, the lower the ratio, the better.) 

Your score can take a hit even if you usually pay off your balances in full to avoid paying interest. For example, if your bank reports your balance to the credit bureaus before you’ve paid your bill, your card usage from that month will be factored into your score. That’s why it’s often helpful to have as much credit available to you as possible, even if you don’t plan to use it. 

Second, if you’ve had the card for a while, closing it could shorten your credit history. Accounts that have been open for a long time tend to positively boost your credit score by increasing your accounts’ average length of credit—an important credit score metric. Both FICO and VantageScore (the most widely used scores) heavily weigh how long you’ve been successfully managing credit. If you shorten the average age of your accounts, your credit score could suffer. 

In fact, that’s why there’s one card you should (almost) never close: Your oldest credit card. Unless your account charges an annual fee, you’re better off keeping it open indefinitely so that you can benefit from an older credit history.

Bottom Line

Don’t let someone else’s opinion of a card dictate your own choices. A cult favorite may be a great card for someone else. But a closer look at your own lifestyle and spending habits may reveal that it’s not the best card for you.

Article Sources

  1. FICO. "What's in my FICO scores?" Accessed Feb. 27, 2020.