If a travel card turns out to offer different rewards or fewer points than you expected, consider canceling it before the annual fee comes due
Dear Cashing In,
I applied and was approved for a Barclay’s travel credit card because it said I would get $400 back after $3,000 worth of purchases in the first three months. I then did further research (which I should have done before applying). Turns out I could only redeem it for travel. If I redeemed it for cash back, it would be for much less. Can I cancel the card right away? Or wait? There is a fee after a year. I don’t have any missed payments or balances on any other card. — Rob
In general, it’s best not to open then quickly close credit card accounts. It’s not healthy for your credit score, because your score will drop by a few points when you apply for a card and probably drop a few more when you close it. If you make a habit of it, it can be a red flag to some issuers that you might not be a reliable customer.
That said, canceling a card that does not work for you is not an unpardonable sin, since the effect on your credit score is minor, and your score will recover. You have already repented for not investigating the card sufficiently before applying, so I won’t condemn you for that. The lesson, of course, is to understand at least the basics of how these reward programs operate. Often, marketing materials tout the ability to easily earn “50,000 points” or “$400 worth” of rewards, with little discussion of how points are redeemed.
You don’t specify the card in your question, but it seems to describe the Barclaycard Arrival Plus World Elite MasterCard. That card has an annual fee of $89 per year (waived first year). When you spend $3,000 in the first three months, you earn 40,000 miles, which is worth $400 in statement credits for money spent on travel. The way that works is you pay for a travel expense on the card, then log into your account and use your miles to offset that travel purchase, for which you receive a statement credit. Capital One’s Venture cards work the same way, with a feature it calls a “Purchase Eraser.”
As you point out, Rob, the miles on your card can also be redeemed for cash, as well as for gift cards and merchandise. However, the biggest payoff is for travel expenses. With the Barclaycard Arrival card, 5,000 points can be used for a $50 credit for travel expenses, or for a $25 general statement credit or $25 worth of gift cards. Merchandise is priced in miles at Barclaycard’s online store, but don’t expect any steals, because the company itself says that redeeming for travel expenses is the “best value.”
Because of the way you earn miles on this card (two miles per $1 spent), these redemption rates mean that it is essentially a cash back card that offers 1 percent cash back, or 2 percent back if you have travel expenses. If you spend money on travel, 2 percent back is not bad, especially since it can cover train tickets, tourist attractions, taxis, rental cars and other travel expenses that can’t be bought with, say, airline frequent flier miles. If you don’t travel, 1 percent cash back is OK — you could do worse, but you could also do better.
Now to your question: Should you cancel? I vote yes. You should not hang onto cards you don’t want, especially if they have annual fees.
If you decide to cancel the card, make sure you redeem all of your miles before canceling. One approach might be to spend enough on the card in the first 90 days to earn the 40,000 miles, redeem them for a $200 statement credit, then cancel.
That way, you at least get something back from a card that doesn’t suit your needs.