Good Riddance Annual Fee!

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Lose that annual fee!

Lose that annual fee!

On a mission to clean up and improve my credit score, I had taken on a couple of cards a few years ago with annual fees. Neither card had a very high credit limit, but at the time it was all any credit card company was willing to lend me. So, I signed on the dotted line and decided to swallow their fees with the hopes of building a solid payment history. Flash forward to today and I’ve finally accomplished that goal: my credit score is over 700 and I’m now receiving credit card offers from more legitimate credit card companies with lower APR’s and NO annual fee.


It took me a while to decide whether I should accept any of these new offers, though. My reasoning was that taking on a NEW card, and potentially canceling an OLD card could ding my credit score. Since raising my credit score was part of my 3-step plan toward becoming a homeowner, it seemed counter-productive to take this action. On the other hand, because I’ve put off purchasing a house for a couple of years, I decided that I really didn’t want to continue paying annual fees on cards with such low credit limits.

A NOTE ABOUT CLOSING CREDIT CARDS: It’s important that when YOU close a card of your own, you follow up with a letter to all three credit bureaus explaining to them that you were the one that closed the account, not that the account was closed by the creditor.

I’m excited to say that the other day, I accepted an offer from American Express for a card with a 10.49% APR, no annual fee, and a credit limit that is much higher than a couple of my combined cards. I canceled one of my annual fee cards, the one with the lowest credit limit, and am waiting to see how this activity will affect my credit score. I made sure to mail in my letter to all three bureaus explaining that I closed the account. If not much harm has been done, my goal is to cancel my second card with an annual fee, leaving me a total of 3 credit cards (one which I share with my husband) with only one annual fee card. I’m not really willing to relinquish the last annual fee card because I feel I need the payment history which dates back about 5 years.

Since I don’t use my cards unless I can pay them off in full each month, I should be able to quickly reestablish any points I do lose on this transaction. Just a quick refresher on how credit scores are calculated:

  1. 35% is based on payment history: Most reports show a two-year period of payment history on installment, revolving, and store credit. Even one payment that is over 30 days late can negatively affect your score.
  2. 30% is based on how much debt you owe: This is also affected by how much credit you are utilizing.  They like to see a debt to credit utilization of 30% or less.  Another note on credit utilization is that you should never be utilizing more than 30% of your credit on any one card or loan.
  3. 15% is based on your length of credit history: The longer you’ve been responsible with credit, the better your score gets. Unfortunately with this one, all you can do is wait and make sure that your oldest, positive credit account is on your reports.
  4. 10% is based on the types of loans you have: There are three types of loans available to you, installment, revolving, and store credit. The credit bureaus like to see that you have access to at least two of these types. Installment loans can be a car loan, mortgage, or student loan. A revolving line of credit is usually a typical credit card like a Visa or MasterCard. A store line of credit can be a gas card or a department store credit card.
  5. 10% is based on new credit: Credit bureaus may view you as a risk if you’ve opened too many accounts in too short a time period. This is based on how recently you’ve opened a new line of credit of any kind, and how many you’ve opened.

My latest action could potentially negatively affect my credit score because the card I canceled was one of my oldest, see point #3, and I opened a new credit card, see point #5. Only time will tell, and in the meantime, I’m saving $69.00 a year.

5 Comments

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  1. Little House

    @Jennifer Barry – It’s a difficult call to apply for a new credit account, I was torn myself. It does ding your score a bit, but if your score is above say 730, you might be in a better position to lose a couple of points. It should continue climbing if the payment history is solid. Good luck on your own decision. I don’t necessarily advocate swapping out cards, but in my position it made better financial sense!

  2. Mr Credit Card

    hey – having an Amex sure beatings cards with fees and low limits! (regardless of score) – which I’m sure will increase..

    My own observation is that after you take on a mortgage and have made timely payments, your score will go up more!
    .-= Mr Credit Card´s last blog ..Fraud By A Foreign Merchant =-.

  3. Money Reasons

    I can’t see it dinging your score too badly… I wonder how long it takes to rebuild it back up.

    Either way saving $69 a year is a good thing! Perhaps since you send those letters in, it won’t ding your score badly or at all! I never heard of sending a letter to the credit companies, but it makes sense… and I can only see positive effects from doing so!

    Thanks for sharing that info! :)

    • Little House

      @Money Reasons – I’m thinking it might not ding my score as much as it could since the credit limit is quite a bit higher than the card I canceled. That means my overall available credit it much higher. I need to pull my score soon and then I’ll know!

  4. screwthescore!

    So….you are trying to clean up your credit score.
    Isn’t your level of debt more important???
    Look at what our credit score is based on…it is ALL based on the amount of debt you carry.
    Why is it we all worry so much about our credit scores?
    Shouldn’t we be more worried about how much we have in savings?
    Haven’t we all learned our lessons on debt yet?
    Look at what is happening to our economy and government!
    Our world revolves on credit and the credit card companies know we are dumb with our money.
    Look up the statistics on how many BILLIONS of dollars they make from our stupid spending habits.

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