Sunday, November 11, 2012

Downgrade your credit card to avoid the annual fee

Many credit cards that offer large sign up bonuses may charge an annual fee for the second year of card ownership.  One example is the Chase Sapphire Preferred card.
The card currently offers a 40,000 Ultimate Rewards bonus when you apply and get approved for the offer.  Go to for more information or to apply.  One year ago, I got this card with a 50,000 point bonus after first purchase.  This card also has a $95 annual fee, which is waived the first year.

I’ve applied for several credit cards this year, as the bonus rewards were too good to resist.  This hasn’t affected my credit in a permanently adverse way at all.  The hard inquiries to your credit lower your score temporarily, and then your credit score improves again (due to increased credit limits and decreased credit utilization).  I just checked Credit Sesame and my simulated Experian credit score has never been higher!
Now that I’ve owned the Chase Sapphire Preferred card for more than 1 year, I wasn’t surprised when this new $95 charge turned up on my bill:  

The first thing I did was to call Chase customer service to try to get that fee waived.  While paying a credit card's annual fee can be worth it in many situations, I decided that it would not be worth it for me.  I made 3 attempts with 3 different customer service representatives over 3 days to try to get the fee waived.  Each time I was nice, courteous, and respectful.  None of the customer service representatives would budge on removing this annual fee. 

Since the customer service representatives could not waive my annual fee and I didn’t want to pay it, I requested that I have my Chase Sapphire Preferred card downgraded into the regular Chase Sapphire card, which has no annual fee. 
The main downsides of the regular Sapphire card include: no 7% annual bonus, no ability to transfer points to airlines / hotels, no 20% bonus on airline flights, foreign transaction fees, plastic card (versus metal). 

In my case, I don’t need the benefits of the Chase Sapphire Preferred card right now.  I have other Chase cards that overlap the benefits of the Sapphire Preferred card.  (Chase INK for 2x points on dining, and Chase Palladium for 2x points on Travel, no foreign exchange fees, and the ability to transfer points to different airline and hotel partners). 

I didn’t want to cancel the credit line yet.  This is because in the future if I want to open up another Chase credit card, I can use the credit line of the Sapphire card as a bargaining chip.  i.e. “If you let me open this new Chase credit card, you can close the Sapphire card.”  

Maintaining this credit line open also helps keep my total credit available very high, which reduces my total credit utilization (credit used versus credit available) and keeps my credit score stable.

The process of downgrading my Sapphire Preferred to the regular Sapphire card took less than 5 minutes.  I should get the $95 annual fee refunded to my account within 7 days, and I should receive a new Chase Sapphire card within 3-5 business days.  If I ever want the benefits of the Chase Sapphire Preferred again in the future, my future wife will sign up for the card and add me as an authorized user.  Edit: my wife signed up for this card a few months ago and we have been using it to rack up more UR points!

Downgrading your credit card does not affect your credit score

Some important things to consider:
  • Not all credit cards can be downgraded or converted 
  • Many times when you threaten to cancel your credit card, you may be offered benefits like annual fee waived the second year, or extra bonus points to keep your credit account open
  • Sometimes it can be worth it to pay an annual fee if the benefits and rewards the card offers exceeds the cost of the annual fee  
  • Closing a credit card line is not that bad for your credit, especially if you’ve only had this card for a year or a short amount of time
EDIT:  Just got my annual fee credited back to my account!

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