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Before the coronavirus pandemic swept the globe, the Amtrak Guest Rewards World Mastercard was a great deal for David White. But now he’s left wondering whether it would be worth canceling.
White, who lives in Baltimore and works for a software firm, used to ride the train frequently — and with the credit card, he was able to rack up points that he could convert into free tickets. With travel now more perilous because of the pandemic, that strategy has proved less useful.
“It still is a glorified form of public transportation,” White, 27, said. “I’m just not sure how utilized that card’s really going to be until maybe this time next year. So I’m considering all but canceling that card, because any points that accumulate there are not necessarily going to be that valuable anytime soon.”
Adding to White’s frustration: The card comes with a $79 annual fee, and there aren’t many competitive options to redeem the rewards points for non-travel-related uses. (Amtrak did not immediately return a request for comment, and a Mastercard MA, +1.85% spokesman said the company defers to its issuing partner regarding issues related to rewards.)
White isn’t alone. A recent poll from CreditCards.com found that one in five people who have a credit card that charges an annual fee think they’re getting less value out of their cards during the pandemic.
“ ‘Annual fees are only worth it if you are able to maximize the card benefits.’ ”
Some credit-card issuers, including Chase JPM, -0.85% and American Express AXP, -0.76%, have broadened the benefits associated with their top-tier rewards cards. Many of these cards tended to focus their rewards on travel purchases — but with those being few and far between, they have begun rewarding cardholders for spending at restaurants and grocery stores to keep them as customers.
But not all companies have taken these steps, as in White’s case. “On many annual fee cards, you’re sacrificing value if you redeem for cash back,” said Ted Rossman, an industry analyst at CreditCards.com.
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And the annual fees these cards come with can be tougher pills to swallow these days. “Annual fees are only worth it if you are able to maximize the card benefits,” said Brett Holzhauer, a travel and credit card expert at LendingTree TREE, +1.37%. “Benefits like travel insurance, airport lounge access and elite status have been rendered nearly useless.”
Most credit-card experts agreed that if a cardholder does not think they are getting the full advantage of a card’s perks, paying the annual fee doesn’t make sense.
The drawbacks to canceling rewards credit cards
Unfortunately for consumers stuck with credit cards they’re not getting much use out of, canceling the cards isn’t a straightforward solution. Yes, doing so will save them money if they have another annual fee payment on the horizon — but there can be significant drawbacks.
For starters, canceling a credit card can ding your credit score. “Canceling a card affects your credit temporarily,” said Sara Rathner, a travel and credit-cards expert at the personal-finance website NerdWallet. “You’ll want to time it carefully if you’re planning on applying for any other loans in the next few months.”
The damage to one’s credit score from canceling a credit card comes in two ways. If the card was one you’ve held for a long time, getting rid of it will lower the average age of your credit accounts. This is one of the factors that drives a consumer’s credit score, and it means your remaining accounts will need to get older for your score to improve. That obviously takes time.
The other issue is that it reduces the amount of credit you have available. That can increase a consumer’s credit-utilization ratio, which can in turn reduce their credit score.
These aren’t the only drawbacks that consumers need to consider, though: “Some travel cards limit how many times you can have them or don’t allow you to earn a sign-up bonus twice, so by canceling, you may be shutting yourself out of that card in the future,” Rathner said.
How to manage your credit cards in a pandemic
Even if you don’t get much use out of a card, you don’t necessarily want to put it in a drawer and forget about it.
With one of White’s other credit cards, he faced the threat of a reduced credit limit. Earlier this year, he had put a lot of travel-related purchases on his Chase Sapphire Reserve card as he booked two international trips. He got refunds for those purchases because of the pandemic, and didn’t spend much afterward.
“ ‘Some travel cards limit how many times you can have them or don’t allow you to earn a sign-up bonus twice.’ ”
Chase later contacted him to say it was reducing his credit limit because of how little he had spent on the card. Many banks have taken steps like these — reducing limits or even canceling cards people don’t use — because all of that unspent credit can represent a major risk to issuers’ bottom lines.
White said he was able to get the change reversed, but he has adjusted his spending as a result. He has shifted most of his spending to his card with Chase, yet he still makes occasional purchases on the Amtrak card to avoid having it closed.
“My main concern is a good credit score at this point,” White said. “I would love to buy a house in the next year or two, and I don’t need any even temporary setbacks on my credit limit.”
But cardholders who aren’t satisfied shouldn’t be shy. You can try to ask your credit-card company for a break on the annual fee, for instance. “It’s not just the lower and mid-tier annual-fee cards,” Rossman said. “I recently heard from someone who got a $300 annual-fee discount on the Amex Platinum.”
If that fails, a consumer might want to consider switching to another credit card from the same issuer.
“While you won’t qualify for a sign-up bonus, it allows you to keep the same account open for a much lower annual fee,” Rathner said. “You’ll lose the fancy perks, but you’ll save money and keep your credit score intact.”
The other option is to dig your heels in and save the points up for a dream vacation, Rathner said. Regardless of which route a cardholder takes, though, they should make sure they continue to make on-time payments to their cards so that their credit remains pristine until the pandemic is over.
