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Credit Cards Requiring Minimum Annual Purchases

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The recently enacted credit card laws are having some unintended consequences. Just as many places reported, credit card companies are now turning to other “innovative” ways to drum up revenue – one of those silly unintended consequences. It turns out, some are now requiring that you make a minimum amount in purchases a year to avoid an annual fee. Sam recently received a letter from Citi about this:

My husband recently received a notice form his Citi Master Card that they will now begin charging him $35 per year as an annual membership fees. The membership fees will be waived if at the end of the year we make more than $2400 in purchases. We know for a fact that we will not meet that $2400 amount. We are thinking about canceling his credit card but then we thought that would probably hurt his credit score. What should we do?

The first strategy I would try is to ask if the fee could be waived – unfortunately, she tried that and Citi said “No.”

The next strategy I would try is to consolidate that card into another Citi card without a $2400 requirement. Sam didn’t have another card so this option was out of the question.

If neither of those two easy techniques work, you could use a trick I revealed for busting cashback tiers on credit cards – buying Presidential $1 coins. At the moment, there are five (six technically because one set is supposed to be released August 11th, but the Mint website doesn’t reflect that) sets of 250 coins available and you can buy 2 each with free shipping. That gives you $2500 in actual money can you deposit in your bank.

If you don’t want the hassle, you can always just cancel the card. It will hurt your score but unless you plan on buying a house or car in the next year, I’d rather dump the card, take the credit score hit, and not pay $35 a year for nothing.

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37 Responses to “Credit Cards Requiring Minimum Annual Purchases”

  1. Craig Ford says:

    I’m not sure about the credit score implications, but in a world with thousands of free credit cards I think consumers should send a message loud and clear that we don’t plan to pay for these ‘creative fees’. I’d cancel the card.

  2. Julio says:

    Although $200 a month doesn’t seem like a large amount to charge (my Cable, Internet and Cell alone would cover that), I agree with Craig, there are too many cards out there to put up with these fees. I would threaten to cancel and they may drop the fee, and if not then just switch cards.

  3. Chuck says:

    This will help give me a way to choose which cards to cancel. I have too many as a result of promotional offers.

    One hope I have is that it will drive consumers back to cash, bringing down costs for everyone.

  4. Ron says:

    You are exactly right Craig – my wife and I carry 8 cards with practically zero balances and we use them sparingly just to keep our credit scores above 800. We plan to buy a house within the next year; however, I won’t hesitate to cancel any card that imposes an annual fee for any reason. We the people need to band together to prevent the credit card industry from continuing their greedy and dishonest tactics.

  5. Darin says:

    Just got a notice from Citi as well. $30 annual fee unless we spend $3000 a year – waived this year though. We easily spend more than this (though more on the Amex since the rewards are better). We’re going to be closing on a house soon, and after that I’m canceling the card. It’s the oldest card in my wallet – I’ll open another MC or Visa before I close this one and not worry about building my credit score back up afterwards (800+ right now, so I’m sure I’ll take a hit for getting a new mortgage and closing this account).

  6. sara l says:

    I’d call back and ask if they can transfer to a different Citi card without a fee/spending requirement. I’ve done this on cards where they added an annual fee with BOA. The account number stayed the same and on my credit report the account goes back to when I opened the first card.

  7. Yana says:

    There’s no way I’d pay an annual fee on a credit card. But I wouldn’t find it difficult to put $2400 annually on a card for ongoing expenditures (groceries, gas, bills), paying the balance in full each month.

    There was an instance where I could get a much lower interest rate if I spent a certain amount on a card within a month, and the amount was higher than anything I would spend. So I charged grocery store scrip, enough for several months of groceries, in order to get the deal. Later, the grocery store changed the policy of allowing the purchase of scrip on a charge card.

  8. What, the merchant feed and interest aren’t enough?

    We run a lot of things through our card (we pay off the entire balance every month; we use the card to take advantage of cash back and detailed billing). I’d laugh if the company tried to pull this on me. Certainly there are other companies that wouldn’t mind the merchant fees our account earns them :)

  9. Andrew says:

    I would just charge as close to $200/month as possible on this card on items I would otherwise pay cash for. No big deal.

  10. mapgirl says:

    ugh. Now I’ll be watching my mailbox for a copy of this letter. Can anyone tell me which Citi cards are being hit with this?

    Thanks!

  11. Diasdiem says:

    The whole buying coins thing seems a bit sneaky. I would think they would have seen a way to prevent it. Essentially, you’re buying money from the mint at face value and free shipping, getting your cash back rewards from the credit card company, and then using the money you bought to pay the credit card bill. I wouldn’t think they’d let people get away with that, treat it as a cash advance or something.

    • Also, the taxpayers are essentially subsidizing your ability to do this, since the “government” is paying for the “free shipping”.

    • Neil says:

      The card company won’t care if you’re buying coins, since they’ll still pocket the transaction fees. Essentially the buying of coins is getting the government to pay your fee for you.

      I’d just cancel out of principle. If your score is marginal this may be an issue, but for most people who actually manage their finances, I would bet that the small impact it’ll have on your score will not change your negotiating position when you go in to talk to your mortgage broker.

  12. Sam says:

    I am Sam :D that was referenced in this. We went with the choice of canceling the card. We are not planning buying a home/car (did that 3 years ago) in the next couple of years and we don’t need that card that bad anyways!!

  13. Sam says:

    Also wanted to add: We don’t use the card to the tune of $2400/year because we have a checking account that we use for most of our purchases/bills because we get a good interest rate on that..and have to make at least 10 purchases with that debit card to get the interest…We also didn’t want the “burden” of thinking about the $2400 limit hanging over our head…

    Now if all cards do something similar, we obviously have to rethink our strategy but holding out hope that other companies won’t do this…

    • Neil says:

      I doubt it will happen to all cards, but big issuers – the ones who’ve historically carpet bombed neighbourhoods with introductory offers – may go in that direction. As long as there’s money to be made in no-fee cards, there will be issuers issuing them, they just be much more choosy about approving applications. Which isn’t a bad thing.

  14. Geri says:

    The only justice about this whole thing is that the “ad grabber” set to match text in the article grabbed a Citi ad. So Citi paid for an ad on an article that trashed it. Sweet.

  15. I know a lot of people are taken by the idea of credit card rewards programs, but it’s getting to the point where you’ll need a matrix to figure out if it benefits you.

    Yesterday a report came out from Chase indicating that their cc delinquency rate is rising quickly and either is or is about to go into double digits. I believe they’re the larget cc issuer.

    If they’re having losses of that magnitude, you can bet there will be changes coming down the road. Now is a good time to pay close attention to those presorted “IMPORTANT NOTICE” mailers the cc companies send out, and all the fine print where ever it appears.

  16. eric says:

    Uuu sucky. I better not get this.

  17. Russell Abravanel says:

    Hurt your score? I never met a homeless person with a great credit score?
    Besides credit can always be repaired so don’t focus only on your score!

    • Andrew says:

      Credit cannot be “repaired.” It can be improved by keeping your utilization low, keeping your oldest cards open, and paying your bills on time over a period of many years.

  18. azphx1972 says:

    Credit scores are overrated. I have a friend with an 800+ credit score, but couldn’t get a mortgage because he was self employed and the bank was extremely difficult to deal with. In the end, he used his business line of credit to buy the property.

    If any of my card issuers tried to pull this on me, I’d be telling them goodbye.

  19. Andrew says:

    Self-employment is not exactly a new or rare condition. I would assume that if you can produce solid tax returns for three or more consecutive years documenting profit (not revenue) of 3-5 times the loan amount, approval should be a piece of cake. Was this person’s income too small or too spotty?

  20. SavingEverything says:

    I dont like the strategy of buying something, even coins, just to avoid a $35 annual fee. Heck, 2% merchant’s processing credit card transactions for $2400 is $48. So, if you only spend 1200, they get $24 and a $35 annual fee from you, with the first year free? Ridiculous. If it’s your only Citi credit card with the oldest history, then you have to save it. But, do not feed or pay any fee to Citibank for that! I’d call Citi and complain. Write/email to their customer service, and directors or VP or Pres of marketing and customer relations. They need to be heard if they want to keep us as customer. Also, if that fails, you can call Citi and ask for a different Citi credit card that has no annual fee, as mentioned by sara. The only thing that changes is your citi credit card # and type of card; your credit history, lines, credit reportings do not change on your credit report. If that doesn’t work, or all Citi cards charge annual fee, then you need to figure out what’s worth it? Keep it and pay, or call to cancel, see if they retain you, and cancel if they dont. Be sure to tell them the reason and tell them you’re doing business with xxxxx issuer (or, go with a credit union credit card).

    Now, there is a way to fulfill the requirement; but I’wont advise it here since it does not send any message to Citi that we dont like this annual fee product.

  21. RHA says:

    Credit cards and credit card companies will do anything to make a buck. Anyone today who thinks credit cards are the way to go need a reality check.

  22. Ron says:

    I’ve cancelled cards in the past and it never harmed my credit score. You just need to make sure that the record shows “Canceled by customer”. If they think that the bank closed the card on you, then it would lower your score.

    • Andrew says:

      I don’t believe this is entirely accurate. One factor in your credit score is percentage of total credit utilized, and closing a card without paying down the equivalent of its entire credit line on other cards will increase your percentage utilized. If the credit line of the closed card is small and you carry low/no balances on your remaining cards, you probably won’t see much of a decrease in your score, but who canceled the card is largely or entirely irrelevant.

      • Jim says:

        I’m with you Andrew. It’s possible that canceling a card won’t affect your score but that’s not true 100% of the time.

  23. Wizard Prang says:

    I have canceled two of my three credit cards in the past year. Since I am debt-free except the Mortgage, there were no other changes of which I am aware. My score has dropped from 778 to 760.

    Yes, it can affect your score, but unless you are borderline, it is not enough of a drop to make a difference.

    Funny, using commonsense one would have thought that reducing your dependence on debt would make you more creditworthy, but in the bass-ackwards upside-down world of financial services, that is no the case…

    • Jim says:

      I don’t think it’s bass-ackwards, it’s just that the various factors aren’t taken in tandem.

      For example, if you knew nothing else and only saw that credit utilization went up, you’d naturally assume the person was riskier because they’re using up more of their available debt than before. However, if you also saw a card cancellation, then you should be able to put two and two together to realize they just canceled a card and are not actually riskier. They have all the information they just choose to do it this way because it’s safer.

      There is no penalty for credit bureaus labeling a safe person riskier than they are, but there is a penalty for the reverse.

  24. CC says:

    I cancelled by Citibank card the day I got the letter, no balance on it, so bye bye. It may hurt my credit score, but why pay for something I rarely use.

  25. BrianC says:

    I currently have 3 Citi cards–no letter received yet, but I’ll likely cancel as well if one arrives.


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