Downgrade instead of cancel: keeping your credit history

If you hold a card with an annual fee you no longer want to pay, ask the issuer for a downgrade before you cancel. A downgrade, also called a product change, moves you to a different card from the same issuer without closing the account, so your account history and usually your credit limit stay where they are.

Cancelling is not a disaster for your credit. But in most cases a product change gets you the same result, no more annual fee, with fewer side effects.

What a product change is

A product change swaps the card product on an existing account. Experian describes it as "swapping the credit card product without closing your account." You typically ask by phone, and some issuers let you request it online or send product change offers by mail or online.

A few limits apply:

• Issuers don't have to allow it. It is an option some issuers offer, not a right.
• Options are usually limited to the same family. Experian notes, for example, that an airline co-branded card may only switch to other co-branded cards for the same airline.
• You won't necessarily get a welcome bonus on the new card, because you are not a new applicant.

Why it protects your credit

Two parts of your score are at stake when you close a card: how old your accounts are and how much of your available credit you use.

Credit age

FICO says length of credit history makes up about 15% of a FICO Score, based on the age of your oldest account, your newest account and the average age of all accounts. Closing a card does not wipe that history out right away. Experian says a closed account that isn't past due can stay on your credit report for up to 10 years, and FICO and VantageScore credit scores still count closed accounts in age-related factors while they remain. Once the account drops off, it stops counting.

So for credit age, cancelling mostly hurts you years later. A product change avoids even that, because the account never closes.

Credit utilization

This is where cancelling can hurt right away. When you close a card, its credit limit leaves your total available credit, and your existing balances suddenly look bigger. Experian notes that once utilization exceeds 30%, it can start to have a more negative effect on your credit.

Here is an example with round numbers:

Experian says a downgrade "won't directly impact your credit score if your account isn't closed and your credit limit doesn't change." That second condition is why you should ask about the limit before you agree.

When cancelling still makes sense

A product change is not always the better move.

• You want fewer accounts to manage, and your remaining cards keep your utilization low.
• The issuer offers no product change for your card, or only to cards you don't want.
• The account is very new, so there is little history to protect.
• You struggle to leave an open card unused. If an open credit line tempts you into debt, closing it may be the better trade for you.

If you do cancel, use or redeem your rewards first. Experian advises checking the program rules so you don't lose points or cash back you have already earned.

Before you call: what to ask the issuer

Write the answers down, and ask the representative to note the account.

1. Which no annual fee cards can I switch to? Ask for the full list, not just the first suggestion.
2. Will my account number, account age and credit limit stay the same? You want all three to stay put.
3. Will this be a new application or a hard inquiry? A product change is normally handled on the existing account, but confirm it.
4. What happens to my rewards balance? Find out whether points carry over, convert at a different value or must be redeemed first.
5. What happens to any intro APR or promotional balance? Experian warns that a 0% promotional period "might be cut short," so ask how the change affects both standard and promotional APRs.
6. Can the annual fee I was just charged be refunded? Experian notes a downgrade may let you avoid the fee or get a recently charged fee refunded.
7. When does the switch take effect, and can I keep using the old card until the new one arrives? Experian says you may still be able to use the old card in the meantime.
8. Will my autopay and recurring charges carry over? If the card number changes, you will need to update them.

Timing and fair use

Some people open a fee card for its welcome bonus and then downgrade before the fee posts. Experian warns that an issuer may claw back rewards from an intro bonus if it suspects you are gaming the system this way. Read the bonus terms, and expect the issuer to treat very quick downgrades with suspicion.

It is also worth asking for a retention offer before you switch. Experian notes some issuers will waive or reduce a fee for a year to keep a customer. If the offer is worth more to you than the fee, you can stay. If not, downgrade.

After the switch

• Check your next statement to confirm the annual fee is gone and the new card terms apply.
• Pull your credit reports a month or two later and confirm the account shows its original open date and limit.
• Keep a small recurring charge on the card. Equifax says issuers may close inactive accounts and are not required to warn you first.

Our main guide to no annual fee cards covers when a no-fee card is the right long-term home, and our card basics section explains utilization and credit age in more depth.

Bottom line

Before cancelling a card because of its annual fee, ask the issuer for a product change to a no annual fee card. If the account stays open and the credit limit stays the same, your credit age and utilization are protected, and you stop paying the fee. Confirm the details first: rewards, any promotional APR, the credit limit and a refund of any fee you were just charged.