FotoFlexer_PhotoHad Enough of New Fees, Higher Rates? Before You Cancel the Card, Read This

If your wallet hasn’t already been cleaned out by the recession or your kids, it may be time to do it yourself.

Credit-card lenders, facing higher defaults and new, profit-crimping laws, have been increasing fees and interest rates, raising minimum payments and cutting credit limits. Some Citigroup Inc. customers have seen their credit limits cut, their interest rates jump as high as 29.99% or their cards canceled altogether.

Losing Credit

  • Credit-card issuers have tightened standards and are raising interest rates, minimum payments and fees.
  • Before you cancel a card, try calling the company to make your case.
  • You may want to line up a new card before cancelling an old one.
  • If you pay your bill each month, reward cards can pay off. But if you carry a balance, shop for the best rates.
  • With fees and rules changing, it’s more important than ever to read the fine print.

WSJ Research

Last month, Bank of America, another large card issuer, said it is testing annual fees ranging from $29 to $99 on a small number of card holders, which may include some who pay their bills in full every month.

With the rest of the Credit Card Act of 2009 taking effect next February and more regulations to come, card holders are likely to continue being affected by rate and fee changes. “We’re not done yet,” says John Ulzheimer, president of consumer education at

The turmoil makes it a good time to take a look at which credit cards are worth keeping. “A credit-card partnership is not like a marriage. It doesn’t have to last a lifetime,” says Bill Hardekopf, chief executive of, a credit-card information Web site based in Birmingham, Ala.

In fact, Dennis Moroney, research director, bankcards, for research firm TowerGroup, says more than 15% of credit-card accounts are expected to close in 2010, with more than half closed by issuers because of delinquencies, and the rest closed by card holders. In a typical year, account attrition is more like 10% to 12%, he says.

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But breaking up with your credit card can have repercussions. With requirements tighter, new credit is harder to get. And letting go of old cards can hurt your credit score. If your credit score is iffy and you’re planning to refinance your house or apply for a mortgage or car loan in the next year, you may want to take care of that business first before changing a credit card. Here are some other tips to keep in mind:

•If your card company has raised your interest rate, cut your credit line or added an annual fee, call the company before you cancel the card. Ask why the change was made and what it would take to reverse it. In some cases, transferring another balance to the card or using the card more often might result in a lower rate. And if you have other accounts or investments with the issuer, make sure they know all your business is at risk. Highlight your on-time payment record and your history with the company. If the representative isn’t helpful, ask for a customer-retention specialist.

Be honest, but be careful. Don’t empty out your anxiety closet. Credit-card customer-service representatives may start quizzing you to determine if your job status or worries about other bills will make you a higher credit risk.

•If you can’t reach a resolution, the new law allows you to “opt out” of a higher rate or an annual fee. You’ll be agreeing to stop using the card, but you can continue to pay off the current balance at the current rate. Citi will let most customers continue to use cards at the current rate until the cards expire.

Ideally, you would cut up the card and let the account lapse for lack of use, rather than canceling—which could hurt your credit score by reducing your available credit overall and lifting the percentage of credit used, a critical factor called “credit utilization.” Try to line up a new card before canceling the old one or letting it lapse. Of course, inquiries for new credit can ding your credit score, too, but they aren’t weighed as heavily as credit utilization.

•If you want out of a reward card with an annual fee but you don’t want to cancel, ask the company to waive the fee or swap for a no-fee card that works for you. I had some issues with an airline-miles card, but I didn’t want to cancel it altogether—or pay the fee. The company waived the fee several times; then this year they offered me a no-fee cash-rebate card instead, which has turned out to be more convenient than the hard-to-redeem miles.

•If you like the convenience of charging groceries, contributions and many of your purchases, reward cards can offer nice perks—and some 70% of credit cards now offer something in return, according to the Nilson Report, a payments-industry newsletter. But you need to compare carefully and be prepared to pay annual fees for the best plans. Consider, too, where you shop: After I switched to an American Express rewards card, I discovered that some of my favorite stores don’t take American Express.

•Do you regularly carry a balance? Focus on the interest rates and do without the rewards. Card analysts say interest rates tend to be higher on rewards cards, negating the benefits you get from charging purchases.

•If you want to use your card sparingly while getting fair rates and low fees, consider cards from a regional bank or big credit union. The Pew Safe Cards Project, part of the Pew Charitable Trusts, recently compared 12 large bank issuers and 12 large credit unions and found the credit unions’ advertised rates were much lower and their penalty fees were about half what the banks charged.

Only about half of credit unions, mostly big ones, offer a credit card, according to the Credit Union National Association, an industry trade group. You’ll need to join a credit union before you apply, usually by opening a savings account with as little as $5.

•Before you hit “apply” on a new card application, zoom in to search for the many layers of fine print and growing fees. Beyond the temporary teaser rate, you’ll want to know the permanent interest rate on purchases, whether there’s an annual fee and what the fee is if you make a late payment.

Do you plan to transfer a balance? You may pay a different interest rate on balance transfers as well as a balance-transfer fee of as much as 5%. Do you get cash advances? You may pay yet another interest rate on those, plus a cash-advance fee, which has risen in some cases to 5% from 3%. Finding these numbers sometimes requires clicking through three different pages of details and terms and conditions.

•The typical household currently has more than five credit cards, according to the Nilson Report. There is no magic number, but three or four cards per household should give you plenty of credit as well as the kind of mix that may help your credit score. You want to have enough of a credit cushion to give your household flexibility while keeping your use to less than 50% of your available credit line.