Credit card holders can absolutely cancel their credit card after one year to avoid having to pay the annual fee.  A number of credit cards charge annual fees, annual fees are particularly prevalent on rewards credit cards and some of these annual fees can be rather substantial.  While the vast majority of credit cards on the market charge the annual fee during the first year, some waive the fee in the first year which makes the prospect of canceling the card after that first year even more alluring.

There are some caveats that come with the recommendation to cancel a credit card just to avoid the annual fee.  Card holders that are cancelling out a rewards card should make sure they use all of the rewards points and bonuses earned on the card prior to canceling the card.  Upon cancellation, the credit card rewards that have already been earned but not yet used will be canceled by the issuer forever.

By canceling a credit card, you may reduce your credit score slightly.  Credit score models evaluate a number of factors about an individual’s credit use, credit history, and available credit.  When a credit card account is canceled or closed, an individuals’ credit score will generally dip due to a lower level of available credit and a shorter average age on credit accounts.  The latter issue will be of less importance since the card in equation has only been opened a year.  The drop in an individual credit score will often be brief and can be mitigated by opening another credit account.

Card holders that cancel a card to avoid the annual fee often replace the card with a new credit card that has either no fee or a more generous rewards offer.  The new card should already have an application submitted and, ideally, accepted prior to canceling the current card to avoid any reduction in credit privileges and payment conveniences.

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