Why You Shouldn’t Consolidate Credit Lines When Canceling a Credit Card

Conventional wisdom amongst travel blogs says that when you call to cancel a credit card, you should consolidate your credit lines (i.e. add the credit line of the card you’re canceling to one you already have) so you don’t lose the credit. The primary justification is so you can then use that credit as a bargaining chip for your next credit card application (i.e. if you don’t get instantly approved, then you call and ask if you can move some credit to open the new card).

But I don’t think that this is the best strategy. I’m going to posit that it’s better for you to cancel the credit card and NOT transfer the credit line, as this will make it more likely that you’ll get an instant approval (or a delayed approval) than if you had consolidated your credit lines.

It seems like most banks have a fixed amount of credit that they’re willing to extend to you. This amount will change if your circumstances change (e.g. your annual income increases), but it’s entirely likely that as an active credit card churner that you’ll hit your limit for a given bank sooner or later.

Assuming that you’re at or near your global credit limit with a bank, when you cancel a credit card, if you just let that credit go away, you’ve essentially freed up that credit for a potential new credit card application. On the other hand, if you transfer that credit limit to an existing card, you’re still at your global credit limit, so you don’t have any remaining credit to be given for a new credit card. Thus, I believe that when you apply for a new credit card, you’ll have to call in to move around credit lines, which means that you’re at the mercy of the credit analyst that you’re working with, rather than having the possibility of an automatic approval without calling in if you had just given up the credit limit in the first place.

Of course, canceling a credit card and giving up the credit limit could have a negative impact on your credit score since you’re reducing your total credit and thus increasing your credit utilization, but I imagine that most of us have much more credit than we’ll ever use. I can’t imagine that going from 5% utilization to 6% utilization will have that much of a negative impact on your credit score.

People similarly say that you shouldn’t cancel credit cards prior to applying for new ones so that you can use them as bargaining chips. But if you cancel the cards prior to applying, I think this increases your likelihood of getting automatic (if not necessarily instant) approvals without having to call in, while if you keep your cards prior to applying, you’re essentially forcing yourself to call to get approved as the bank doesn’t want to extend more credit to you with your current cards.

Of course, when I’m saying that it’s “better” to cancel credit cards prior to applying for new ones or to give up credit lines, I’m using the metric that avoiding calls to reconsideration lines is  good. Although it seems like most calls to reconsideration lines are successful, it’s still not something that I enjoy doing and it takes a fair amount of time, so anything that can help me avoid getting on the phone with banks is a plus for me!

As a personal example, I felt like I was probably close to my global credit limit with Chase, so when I called to cancel my personal MileagePlus Explorer card, I declined to transfer any of the credit to any of my other cards. When I applied for the business version of the card a week later, although I didn’t get an instant approval, I received an approval without having to call in several days later. And the credit limit of that card was almost identical to the credit limit of the card that I canceled, which makes me believe that I would have had to call in and negotiate if I hadn’t canceled the personal card and given up the credit line.

Has anyone had similar experiences? Or do you think I’m off the mark here?