When It’s Time To Cut The Credit Card Cord

I logged into Mint.com today (I love me some Mint) and I saw that one of my credit cards, of which I have a zero balance and have owned for 7, years has decided to charge me a $50 “membership fee”. My credit limit is…$500.

They are charging me 10% for essentially, nothing. They offer me no services, rewards, points, laxatives, hookers, etc…nothing.

Naw, playa.

The sheer audacity of this company, Capital One, to charge me this membership fee is ridiculous on many levels. Mainly because they haven’t treated me like a valued customer; they haven’t increased my rate in 7 years (yes, I have asked). Frankly, a $500 credit limit is a drop in the bucket to the credit cards I carry on a daily basis (AMEX Starwood, Chase Freedom).

I’ve heard not to cancel your oldest credit cards -- it shows more credit history. But I believe alleviating the hassle of holding onto this card, and straight-up insulting nature of Capital One’s membership fee, far outweighs the slight ding on my credit score. It's time to separate fact from fiction. George Mannes wrote

The most important point made by [FICO] spokesman Craig Watts is that it's a myth that if you close a credit-card account, all trace of it disappears from your credit score. In fact, he says, the credit agencies from which FICO draws information used to calculate your score hold on to payment history for years -- the positive stuff for about a decade and the negative stuff usually for seven years.

You've read -- perhaps from well-meaning people on FICO's own message boards -- that you should never close your oldest credit card because your length-of-credit-history measurement will immediately plummet? Again, that's a myth, says Watts. (Dropping it might affect your credit score a decade from now, he grants, but the impact will be small potatoes compared to that of your credit-related behavior in the interim.)

Like all things, there must be a strategy involved and credit cards are no different.

If your credit card rate, balance aren’t in your long-term plans,

1. Prepare an Exit Strategy – if you do cancel this card, what happens next? Will you still have a respectable line of credit? Are you still able to get credit? Checking your credit score may be a good idea at this point so you can understand your leverage


2. Contact the credit issuer and see what can be arranged. NOTE-any limit request increase and/or APR decrease will affect your credit score in the short term(because they will judge this by conducting a hard inquiry against your credit score)


3. Evaluate its usage – How often are you using this card? If not very often you may have to conduct the standard cost-benefit analysis


4. Cost-Benefit Analysis – Everything has a cost and a benefit. Some benefits range from superb customer service to balance, APR and cash back. Evaluate these and prioritize them -- keep in mind there may be a cost (fees, protection, etc)


5. Cut the Cord – after all measures mentioned above are exhausted, and the cost outweighs the benefit, it may be time to walk away.

You should be selective about what type of credit cards you receive (try to cut back on the store cards). Your expectations should be met throughout the duration of the relationship and you set these expectations.