Thinking About Canceling Your Travel Credit Card? Do This Instead

If you downgrade your card, you won't run the risk of losing your rewards or hurting your credit score.

Even if you aren't traveling any time soon, there are plenty of reasons to keep your travel credit card open.

For one, the best travel rewards credit cards are offering special non-travel benefits in light of the COVID-19 pandemic. Also, if you've accumulated points or miles, you could lose them all by closing your card. Perhaps more importantly, closing a credit card can negatively affect your credit.

If you're paying an annual fee for a credit card you no longer use, there's no denying that's a waste of money. Instead of closing that card, though, you might want to consider downgrading it.

The benefits of downgrading your credit card

Many credit card issuers offer a lineup of travel credit cards that range from travel credit cards with no annual fee to premium travel credit cards with VIP perks and a steep annual fee. If your card has an annual fee, you might be able to downgrade to the card's no annual fee counterpart.

This is often a smarter move than closing your card altogether. Not only will you be able to keep any rewards you've earned, which usually expire if you close your account, but you can also preserve your credit score.

How closing a credit card impacts your credit score

Closing a credit card won't always cause your credit score to dip, but it often can. When you close an unused credit card, two components of your credit score are likely to be impacted. These are your length of credit history (15% of your score) and your amounts owed (30% of your score).

Your length of credit history looks at the average age of all your accounts. It also considers the age of your oldest and newest accounts. The longer your credit history is, the better. Closing an account you've had for a while can shorten your credit history and drag your credit score down a little.

Your amounts owed is the second most important category in your credit score. It looks at your credit utilization ratio -- that is, the portion of your available credit you're currently using. This is calculated by adding up all of your credit card balances and dividing that number by the sum of all your credit limits. (Your credit limit is how much you can charge on all your cards.) The lower this number is, the better.

You can keep this number down by maintaining low credit card balances in relation to your credit limits. Never using more than 30% of your available credit is wise. Leaving credit cards open even when you don't use them often keeps your available credit high and your credit utilization low. But closing an unused credit card causes your available credit to drop and your credit utilization (if you have any balances) to increase. This can result in a near immediate hit to your credit score.

How to downgrade your travel credit card

If you decide you want to downgrade your travel credit card rather than close it, you'll want to understand how to downgrade a credit card.

Give your credit card issuer a call to ask what your options are. A downgrade is often called a "product change." Your credit card issuer can let you know what cards, if any, are offered in the same family as yours and whether or not you can downgrade to them.

Downgrading your credit card won't hurt your credit score at all. The only major downside of downgrading your credit card, apart from losing some of the perks of your current card, is that you won't be eligible for any welcome bonuses or introductory offers the downgraded version has.

That being said, it might still be worth it to downgrade your card. You'll be saving money on annual fees while keeping your rewards and credit score intact.