Dubai: If your spending habits have changed since you got your current credit card or you aren’t using your card enough to justify its yearly cost, it may be time to change or upgrade your existing card.
“Let’s say you would like to start earning more rewards for your purchases, or you’re just interested in a new credit card because you’re simply bored of the old one, you could then choose to upgrade your current card or get a new one,” said Essam Kabeelali, an Abu Dhabi-based credit advisor.
But in such circumstances, would you be better off upgrading your existing card or applying for a new one? Also, what exactly is a credit card upgrade, how does it work, and how is it different from applying for a new card?
What happens when you upgrade your credit card?
When you upgrade your credit card, you typically keep your existing credit card number and account number. But your card and account will be subject to the terms and conditions of the new card. If your new card earns rewards, you’ll earn those rewards once you switch to the new card.
“If you know your issuer has a more exciting product, it may be a good idea to request an upgrade. But you don't always have to trade up. You can change to a card with a lower or no annual fee as well by getting in touch with your card issuer,” Kabeelali added.
“Even though you can always apply for a new card if you want, but upgrading your credit card may help you avoid a hard inquiry on your credit reports — which can help protect your credit scores, as a hard inquiry has the potential to lower them.”
Should you upgrade instead of applying for a new card?
As credit card companies set their own policies for a new card and set the eligibility criteria for the card, to upgrade, you need to not only have a good payment history and be in good standing, you’re also likely required to have a certain credit score in order to qualify for an upgrade.
“You may have to lose any remaining perks on your current card when you upgrade and once you switch to a better card, you won’t be able to take advantage of perks only offered to a new customer – which is a category you don’t fall under when you upgrade your card,” warned Kabeelali.
“Also, if the card you want to upgrade to has an annual fee, you might have to have your account open for a full year before you can upgrade. This is primarily because most credit card companies are generally prevented from increasing your annual fee within a year of opening your account.”
2. You do earn rewards, but not for purchases you typically make
3. You’re being offered a limit increase with an upgrade
4. When other cards offer more benefits that suit your routine spending
What if applied for a new credit card instead of upgrading?
Instead of upgrading or swapping your existing credit card, you could also consider applying for a new credit card. The primary reason behind this is that with new credit card accounts, you are often times eligible for additional perks – like bonus rewards you can earn if you spend a certain amount.
“Applying for a new card also means you could add a line of credit without closing your existing card – closing your existing card could cause your credit scores to drop,” explained Rajesh Markara, another Abu Dhabi-based debt advisor.
“If you use your credit card responsibly, adding another line of credit could potentially even help you improve your credit scores by lowering your credit utilisation – a measure of how much of your available credit you’re using.”
“By opening a new card, instead of switching from your current card, you may be able to increase your available credit. If you typically carry a balance, this may help you lower your utilisation ratio. This helps you decide whether to upgrade your card or get a new one,” Markara explained.
Verdict: Should you upgrade your credit card or get a new one?
If you’re still using a starter credit card but spend more money now than you used to, you might benefit by upgrading to a rewards card. A credit card upgrade could allow you to get a new card, possibly with better benefits and rewards, without requiring you to apply for a new line of credit.
You can always apply for a new card if you want, but upgrading your credit card may help you avoid a hard inquiry on your credit reports — which can help protect your credit scores, as a hard inquiry has the potential to lower them.
“By upgrading to a card that’s a better match, you could start to earn rewards for more of your purchases. While you could make use of the perks a different card might offer, an upgrade may not be the best move if a credit limit increase on could tempt you to overspend,” added Markara.
“If your credit is good and you have a positive history with your issuer, upgrading your current card should be a simple process. Before you start, do your research to find the right card for your spending — that's also eligible for you to upgrade to, under your issuer's rules.”