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With recent credit card introductions by United and Delta, all of the biggest U.S. airlines now offer cards with either no annual fee or a lower fee than their standard cards. The new cards aren’t exceptional offerings, especially for frequent travelers. But they could provide value in a different way for existing airline cardholders thinking about canceling their high-fee cards. By downgrading to one of these cards, they could dump their current airline card, and its annual fee, without hurting their credit scores.
For example, if you moved your residence from Atlanta, a Delta Air Lines hub, and now rarely use your Gold Delta SkyMiles® Credit Card from American Express, you might find it’s not worth its annual fee: $0 for the first year, then $95. But you might be able to get rid of the recurring fee by requesting a downgrade to the new Blue Delta SkyMiles® Credit Card from American Express, which has an annual fee of $0. Without a fee, it doesn’t cost you anything to keep a seldom-used card.
Downgrading vs. canceling
Downgrades are a little-known way of ditching a card without closing the account. Canceling a card account can hurt your credit in a couple of ways. First, it reduces the average age of your open accounts. More significantly, it reduces the amount of your available credit, which may increase your credit utilization, a big factor in credit scores. Swapping a card for a different one within the same family — even from a fee card to a no-fee card — doesn’t hurt if you can retain your account and credit limit.
The downgrade option is not one that issuers advertise, and it isn’t guaranteed. It might involve negotiating with a customer service representative. The backdrop for the conversation is that the issuer wants to keep you as a customer and would likely rather have you downgrade than cancel. Be aware that you won’t get any sign-up bonus for downgrading to the new card.
All three major network airlines have paid attention recently to the market for cards with lower annual fees or none at all:
- Delta debuted a starter card for infrequent travelers
- United came out with a card that offers simplified rewards
- American Airlines touted its lower-fee card
Downgrading an unwanted card instead of canceling might be an easy decision with the Delta and United cards because their new lower-tier cards have no annual fee. But American Airlines’ lower-tier card, the Citi® / AAdvantage® Gold World Elite™ Mastercard®, has a fee of $0 for the first year, then $50. That represents a reduction from $0 for the first year, then $95, the fee for the Citi® / AAdvantage® Platinum Select® World Elite™ Mastercard®. But it’s not zero, so you’ll have to consider whether a downgrade is worth it.
The other major U.S. carrier, Southwest Airlines, has not introduced a new lower-fee credit card, but it already had one, the Southwest Rapid Rewards® Plus Credit Card, which has an annual fee of $69. Its big-brother card charges $99.
Consider bags before bailing
Before dumping an airline card, however, make sure it doesn’t hold enough value to be worth the annual fee. The most obvious way many co-branded airline cards earn their keep is by waiving checked bag fees, typically $25 per bag each way. That can be worth $100 on a single round trip for a couple. The no-fee and lower-fee versions of major airline cards do not include free checked bags. (It’s not an issue for Southwest Airlines because all passengers get the first two checked bags for free.)