We have found that many big lenders, facing rising defaults and new regulation that would hurt profit, have started introducing ways to offset loss of revenue from consumers. Bank of America, for example, has said it is testing annual fees on a small number of customers. This has caused many customer to wonder if they should start shopping around for a new card that doesn’t impose fees, or at least asks for smaller fees for their services.

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Before you rush to cancel your card, however, you may want to consider a few things first:

  • You can actually call your card company if your rate has been raised and speak with a customer service representative or a customer- retention specialist to find out why there was an increase.
  • You might want to remember that because of how your credit score is calculated, canceling your card means you then have a higher utilization of your available credit. This would lower your score a bit and taking into account the fact that credit is harder to get, you may be put at a disadvantage if you are seeking a car loan or mortgage in the near future.
  • Furthermore, there may even be the possibility that you cancel or change your card company to one that is not accepted at some of the stores where you shop.

Rewards, Balance Transfers and Fees

Sometimes you may want the rewards but just do not want to pay a fee. If you have a card that offers rewards but has an annual fee, you can try to get the fee waived. You should also look at the rewards that you do get. You may want to keep your card and accumulate miles or the one that gives you cash back. Remember that you most likely will pay annual fees for cards that give back the most. Also, you may want to transfer your balance to another card so you should be a bit careful and consider your balance transfer fee before you do this.

Now of course the major factor in your decision should be the interest rate you are paying. As noted before, there are fees for transferring a balance but there may also be a different rate for those transfers as well. There may also be different rates for cash advances if you do get them. Interestingly, when considering interest rates and fees you may find that many big credit unions are lower when compared to big banks. You should note that you would have to join the credit union first and there may not be a variety of them to choose from (there may not even be any in your area) because only a few credit unions do offer credit cards.

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  • Even if a new annual fee gets added to a current card there are plenty of other credit cards out there that will not have an annual fee. You are right though in that if you cancel a card then it will ding your credit score. If someone is debating applying for a home loan or other large line of credit then it is best to wait until approval before thinking about canceling any existing lines of credit.