Question: Last week, I received a notice from a credit card company informing me that they were going to start assessing a $60 annual fee on my card. I have (or had) been a card member since 1993, had never missed a payment, and had never been asked to pay a fee. In order to waive the fee, I had to spend at least $2,400 per year on the card.
The card offered no special features or bonus points, and I was unwilling to commit to spending $2,400 per year on the card, so according to the three customer service representatives to whom I spoke, I had no option but to cancel the card. The company was unwilling to negotiate with me in order to keep my business.
Did I do the right thing to cancel the card? Will it hurt my otherwise excellent credit rating? And is this practice by credit card companies starting to become the norm? (This is the second card company to impose an annual fee on me.) Should I expect to start paying an annual fee for the convenience of paying on plastic? Alec, Watertown, MA
Answer: I think you did the right thing to cancel the card. It's a bad personal finance deal to agree to spend $2,400 a year to waive a $60 fee.
That's a bad deal for you. And $60 is a high fee even in the current credit card climate.
Fact is, the major credit card issuers are under enormous financial pressure. Defaults and late payments are hurting the bottom line. So is the effort by many folks to pay down their credit card debt and avoid interest charges. What they're hoping is that enough customers will be willing to pay the fee to avoid damaging their credit score.
As they say in Brooklyn (where I used to live), Fuggedaboutit. First of all, the key to a good credit score is to pay your bills on time over time. A closed account doesn't always nick a credit score and, even if it does, the effect is temporary. Secondly, the only time closing an account might matter to your finances is if you're in the market to borrow a lot of money, say, for a home or a car. If that's the case, it's a good precautionary move to pay the fee just to keep your credit score pristine. But I'd cancel the credit card as soon as you've closed on the loan.
Here's the thing: Capitalism is a wonderful system. You don't have to do business with this credit card issuer. You shouldn't have to pay for its business mistakes. You're the customer. And you shouldn't be hostage to the algorithms of the credit scoring business. There are plenty of credit unions, community banks, independent banks, online banks, and other credit issuers that will offer you a better deal, from low-fee to no-fee cards. They still want good customers that pay their bills on time.