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Can I get out of paying my annual fee?

Erica Sandberg

July 15, 2014

QHi Erica,

On a whim, I upgraded my Delta Skymiles American Express because of the travel perks. I've only used it one time in the last year, and I feel the annual fee isn't worth it. Is there a way to downgrade my card so I don't have to pay the annual fee? Also, I don't want it to affect my credit rating. –Mitzi

ADear Mitzi,

Unfortunately, you can't tailor a credit account as you would a dress hem. Sure, you may request a higher credit limit or a lower APR, but other than that, you are pretty much limited to the plastic you were issued. Sometimes it turns out that the card doesn't suit your lifestyle, though. When that happens, shop around for one that fits better.Ask Erica

Before you take action, it's worth a call to the issuer to ask if the annual fee can be waived. It's worth a shot, and what do you have to lose? Explain to the customer service rep your situation and see if there's any solution you both can agree on. If not, then at least you know you tried.

Not all credit cards come with annual fees, but this particular set does. American Express offers three Delta Skymiles products: The Gold is $95 (after the first year, which is free), the Platinum is $195, and the Reserve is $450. These may initially sound expensive, but you can build points as you charge and trade them in for such goodies as airfare and upgrades. Special concierge services are also available. However, if you're not a big traveler (or Delta isn't your carrier of choice), paying for any of these cards is wasteful. Rewards accounts are fantastic, but the benefits must be worth at least the annual fee.

So can you protect your credit rating while closing this unnecessary card and getting one that's more to your taste? Yes, if you do it the right way.

First, understand that the good payment history you have with this credit card won't disappear from your credit file. The activity for closed but positively treated accounts remains on a consumer's credit report for 10 years. That means if you paid on time, the card will continue to work for you long after it's closed. That's because payment history makes up 35 percent of your FICO score, the credit score most lenders use to measure your creditworthiness.

Canceling this account won't affect payment history, the most important factor in a FICO score, but it can impact the next weightiest: utilization. This is the amount of debt you hold relative to the amount you can contractually borrow and comprises 30 percent of your FICO score.

For scoring purposes, it's best to owe less than 30 percent of what you can charge. This means that if your credit lines total $10,000, and your balances come to less than $3,000, you're doing well. But if you were to close a card that has a limit of $5,000, your ratio would suddenly be out of whack and your scores would decline. To prevent this, pay your debts off (zero is best) before shutting the card down.

Another scoring category is length of credit history, and if this is one of your older cards, closing it will result in a few more lost points. Just how many will be shaved off your score is not clear, as FICO doesn't make such details public. Still, it's a minor category, accounting for 15 percent of your FICO score, and if you have other longstanding accounts with which you've proven your borrowing abilities, it won't be a big deal. New credit and types of credit used make up the remaining 20 percent of a FICO score, at 10 percent each.

Before calling the issuer to bid farewell, check out the credit cards that are available to you and pinpoint the one you like best. Maybe it's a gas card, or one that allows you to earn cash as you charge. Just make sure it's right for your lifestyle. You don't want to have to go through this situation again.

Once you have the new card, you will be free to end the relationship with the one you don't want. Any scoring damage the closed card caused will soon be offset by your excellent borrowing behavior in the future.

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