A card that works for you at one point in your financial life may not be a good choice later. That’s why it’s important to know when and how to upgrade – or downgrade – your credit cards.
“We outgrow cards,” says Mike Sullivan, personal finance consultant with Take Charge America, a national nonprofit credit counseling and debt management agency. “We outgrow introductory cards and secured cards and cards that limit us as we have more opportunities and more obligations.” And we can also outgrow cards when they offer a large selection of benefits that are no longer as valuable to us, he adds.
Here’s what you need to know about upgrading and downgrading your credit cards to help ensure that you always have the best plastic for your current needs.
When to Upgrade a Credit Card
These situations may warrant upgrading your credit card.
If your credit score is way higher than it was when you got your first card. “Everyone should be paying very close attention to their credit scores,” says Gage Kemsley, vice president at Oxford Wealth Advisors, a New Mexico-based retirement and estate planning firm. If over time your credit score rises, you may want to start considering products with more favorable terms and programs.
This goes especially for people who have no credit or bad credit to start, Kemsley says. “As your credit improves, the credit card options that are out there are much more competitive.”
To move from a secured credit card to an unsecured one. For younger consumers or those with poor credit, sometimes the only available credit is a secured credit card. These generally require that you provide an upfront cash deposit that equals the amount of the credit line. They give you an opportunity to prove your creditworthiness, but they are intended to be temporary solutions, Sullivan says.
If you’ve proved that you can use credit well by making consistent on-time payments, you should be able to upgrade to an unsecured card, Sullivan says. It could take several months, depending on the original state of your credit, but once you notice an uptick in your score, go for it.
If you want to boost your rewards even more. If you’re doing a great job with your rewards or cash back card, you may want to move into a higher-end option. “You have to figure out at what point are you earning enough cash back, points or miles to warrant an annual fee,” Sullivan says.
This requires some number crunching on your part. Look at what you’ve spent over the last few months or in the last year in your top spending categories, and then find a card that has the most related earnings potential.
Say you spend $500 a month on groceries. You might compare one card that gives you 3% cash back on grocery spending to another that offers 6% back but that has an annual fee. Do you spend enough to upgrade to the card with the fee?
You should also think long term, Kemsley adds. While your spending habits, coupled with a large sign-up bonus, might help you out-earn the fee when you first get the card, do you think the card will still bring you value three or four years later?
When to Downgrade a Credit Card
Consider downgrading your credit card when these apply.
If you’re paying annual fees but not reaping enough benefits to warrant them. Sometimes, scaling back your credit cards makes more sense than maintaining higher-end products. “If you’re not getting benefit enough back to offset that fee you’re paying, it might make sense to cancel the card altogether,” says Kemsley, and look for something more in line with your goals.
Indeed, the perks that mattered to you a few years ago may no longer help you if your lifestyle has changed.
“At every stage of your life, you need to look at your overall financial position and decide what you should do to improve,” Sullivan says. That includes evaluating the types of credit cards you use. He says that while he, at one time, found a lot of value from a high-end travel card with an annual fee, he’s since switched over to cash back cards because he travels a lot less.
If you’re carrying a balance and struggling to pay it off. Whether or not your card has an annual fee, your main goal when you’re carrying a balance should be to get rid of that debt in the cheapest way possible, Sullivan says. That could mean downgrading to a no-frills card with a lower interest rate.
Typically, rewards cards have higher annual percentage rates. Despite this, 26% of rewards card users in a 2018 U.S. News survey reported that they carry a balance at least seven times a year. “You can’t get hung up on points when you carry a balance,” Sullivan says.
One option may be to look into switching to a card that has a generous balance transferoffer. Moving the balance over to avoid paying interest for as long as 12 to 18 months can save you a lot of money and help you conquer that balance for good – if you’re diligent.
Should You Close Your Old Cards When You Upgrade or Downgrade?
If you decide you’re in need of a card upgrade or downgrade, you should be aware that there are a few ways to go about it.
Option 1: Call your issuer and ask to transfer into a product that is better suited for your needs. In this case, the issuer might take your account history and simply move it onto a new card, as opposed to closing one account and opening a new one. The benefit of going this route is that your credit history and credit utilization isn’t really changing, so your credit score won’t be as affected, Sullivan says.
This option makes the most sense when you want to switch from a card that charges an annual fee to a no-fee or lower-fee product with the same issuer. In most cases, it should be a seamless process, provided your account is in good standing, Sullivan says.
One caveat: When you’re downgrading an existing account rather than applying for a new card the traditional way, you will likely lose out on any sign-up bonus that new customers get, Sullivan says. If that’s important to you, you might decide that it’s better for you to just close the card that charges a fee and apply for a new card separately.
Option 2: Apply for a new credit card and leave the old one open. If you have a card without a fee but feel it’s no longer useful to you, there’s no harm in just keeping the account open. And you can even do this if your current issuer sends you an enticing offer for a different product that’s a better match for you.
“If there are no fees involved, there’s no reason why you can’t have two cards with the same institution,” Sullivan says. If you find another product that’s good for you, go ahead and apply so you get those bonuses, he adds.
Credit-score-wise, you will lose a couple of points for opening the new account but also get a bump for the increase to your available credit, which should improve your credit utilization.
Option 3: Apply for a new credit card and close the old account. This makes the most sense if you’re moving from a secured to an unsecured card, Sullivan says.
“A good issuer should offer to upgrade you to an unsecured card,” he says. But if your issuer doesn’t, you should initiate that action if you have kept the account in good standing for several months and your credit score has improved. That way, you can get your security deposit back.
Upgrade or Downgrade Your Credit Cards to Align with Your Lifestyle Changes
There’s no rule that says you’re stuck with the credit cards you started out with years ago or that you have to stay loyal to one issuer. As your lifestyle and financial situation change, so, too, should your plastic portfolio.
“Keep your ear to the ground, and look for new offers,” Kemsley says. If your current cards aren’t working for you, upgrading or downgrading could help you make financial improvements in your life.