Updated: May 01, 2023

How to Negotiate Credit Card Retention So You Can Dodge Your Annual Fee

You may not know it, but you may be able to negotiate credit card retention bonuses and skip that annual fee. Here's how to do it.
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It seemed like a good deal. That credit card you signed up for had great terms, it came with a gift of bonus points to boost your account, and even a waiver of the first year's annual fee.

But now that the card's anniversary is coming around you're having second thoughts because, for this year, and for following years, you'll have to pay that annual fee.

Well, with a little negotiation, that card can actually be an even better deal than your instincts first told you.

You can probably negotiate a credit card retention offer, as many cards are now offering some sort of anniversary bonus as an incentive to pay the annual fee.

This can be anything from a billing rebate, to bonus points or miles, to a free hotel night.

Your retention bonus strategy

This is a special offer to retain your business, so it's called a retention bonus.

To win a retention bonus, your strategy can be as simple as calling your card provider and saying: “Hi, I'm thinking about closing this credit card account.”

According to an industry insider, the reason you give them for closing the account will not affect what specific offers the card provider's customer service rep will have available for you.

However, the reps are trained to try to address your main concern and give you whatever will cost the least and still address your concern.

If you tell them the annual fee is your main concern, then they are more than likely going to offer some form of billing credit (if available) as their first solution.

However, the offer they make is rarely the only offer available.

The key here is to make sure your reason addresses what you would need to keep the account.

If you want them to credit you for the annual fee, tell them you are considering closing because you don’t want to pay the annual fee.

If it would take bonus miles/points to keep you, tell them you are closing the account because you just don’t feel like you were earning enough miles/points.

Or that you are earning more points with a different card. Then they are more likely to start making offers that compete with the bonus miles/points formulas on other cards.

If the rep makes an offer and you want more, do not be afraid to ask.

The reps are held to a high quality standard and they have to give you what you ask for if it is available.

Keep the question fairly general. Don’t ask, “Can you give me 5,000 bonus miles?”

But, rather, if miles are what you want, then ask, “What's the most miles you can offer me to keep my business?” And they have to tell you the offer.

Or if the billing credit is the biggest thing you're after, then ask, “Can you give me a larger billing credit?"

If there's a negative answer to your request for a retention bonus offer, don't give up.

If you don't succeed with the first rep you speak to, simply thank them and call back later. Negotiating with a second rep is always an option.

The reps have two motivations to negotiate: their commission is based on how they retain you and they have a retention quota -- a certain number of accounts they have to save.

The timing of your move

You should begin making your calls early, about eight months into your card membership, and four months before the annual fee is due.

That way there's plenty of time to call again. Of course, if you're getting the same answer after several calls, you may well not be qualified for the retention bonus offers that you want.

If it becomes definite you won't get a retention bonus offer, obviously you can avoid paying the annual card fee by closing out the account.

But if you are closing too many cards in a short period of time, it's very likely to negatively impact your credit score.

A better option might be to get yourself downgraded to a free version of the card and keep the account open -- even if you don't use it. When it comes to your credit standing, it's better not to burn bridges.

If worse comes to worst -- you haven't been approved for a retention bonus offer and you've decided to close the card -- don't forget to transfer your credit line to another card from the same issuer first.

You don't want to lose any of the credit potential you've earned. And having plenty of credit helps keep your utilization ratio low, which is good for your credit score.

It also helps to have as a bargaining chip to use when calling to get approved for new credit cards.

Why the credit card providers do it

Our industry insider says the rationale behind these offers is simple: it’s cheaper for them to keep you than to lose you.

The typical credit card company spends upwards of $700 and more to acquire you as a customer (what with marketing to you, affiliate payouts, sign on bonuses, setting up the account, and so forth).

The same insider says it takes a card vendor an average of seven years to absorb all the costs of acquiring you.

So, if they spent $700 and more to get you, it is a lot cheaper for them to waive the annual fee and lose $95.

If you don't close the card and they keep you as a customer, they avoid having to spend another $700-plus to get someone else.

How do the companies determine what to offer you? There is a system-generated profitability model that automatically determines the offers available to you based on your profitability or potential profitability to the credit card company.

Many things are factored into the calculation, such as how long you have had the card, credit card type, the total length of history with the credit card company, total previous spending, payment history and income.

That's why it's always easier to negotiate credit card retention when you're already a customer.

Even if your relationship might be because of another type of account, at least it gives you a track record with the company.