As your life changes, what you need from your credit card will also change. Perhaps you used to travel often and got a lot out of a travel rewards card, but now you’ve settled down and would really like a card that gives you cash back. Whatever the case, when you find that your credit card no longer fits your lifestyle, what do you do? Can you call your issuer and ask for a different card? Should you get a new card from another issuer?
Here are some things you should know before switching credit cards.
Decide what you’re looking for
The first thing you need to do is a little homework, says National Consumers League’s John Breyault, vice president of public policy, telecommunications, and fraud.
If you’re looking for an everyday card for things like groceries and gas, you need a card that is accepted at your favorite places. If you’re looking for a travel card, you need one you can use at most destinations and at the airlines you fly with.
If you want to transfer your balances, you’ll need to look for a card with a limit at least as high as the amount you want to transfer, otherwise your transfer will not happen.
What you need to do is communicate your needs with the issuer before you apply. Confirm the information by calling back a few times and getting the names of the reps you talk to.
Switch cards strategically
If you’re interested in trading your existing card for another from the same issuer, you may be able to call your issuer, according to American Financial Services Association senior vice president Danielle Fagre Arlowe, and explain what you want to do.
She goes on to explain that there are no guarantees in terms of your credit score.
It’s important to know that your card issuers periodically check your credit. These inquiries do not affect your credit score. If you request a higher credit limit or make certain other requests, the issuer will do a hard inquiry, which will affect your credit score.
Principal scientist Ethan Dornhelm with the Fair Isaac Corp., FICO score developer says with good credit, a long credit history, and several accounts, the inquiry should only lower your score by a few points.
If you’re considering such a move, do your homework and decide on the card you want. If you’re planning to buy a new home, car, or other big-ticket item in the next year, you’ll need to hold off. Being careful with your applications will get you what you need with minimal impact on your credit score.
Be prepared for rejection
It’s possible your issuer may not want to give you another card, especially if you already have a card with a large credit limit and are looking for another card with a large limit.
You could encounter the same problem with another issuer if you have a lot of credit already.
Know what you have at the moment, because that will influence what they are willing to give you.
If you have a lot of unused credit, you may want to close some of your unused accounts because too much available credit is threatening to credit card issuers. Don’t close your oldest accounts if you can help it. Those old accounts constitute a long history that helps your score.
Don’t close too many accounts, though, as this can also hurt your score. Look at the ratio of your available credit to how much you use each month. This ratio is known as your credit utilization ratio. Ideally, you want your credit utilization ratio below 20-30%.
Be careful with rewards
Travel rewards cards are a little bit of a different beast than other cards. The miles can be thought of as an alternative currency, with the card issuer determining the conversion rate, with terms that can change on a dime.
If you’re considering a travel rewards card, do a little number crunching based on your typical budget. How many miles or points would you anticipate accumulating each month? What can you do with those miles, and how easily are they used? Will you be able to use them in a reasonable time frame?
It also pays to ask a few questions if you’re considering giving up a travel (or other non-cash) rewards card.
What happens to the miles you’ve accumulated? Is it possible to transfer them to another card? Will they be accessible for a time? Will you be able to use them up in that time?
Those miles may not be cash, but they still have value, so you want to know what happens to them. Are you required to use them after a specific time frame?
Watch those teasers
The teaser rate is the temporarily low rate offered with a new card. Federal law requires these rates to last at least 6 months, but only if you pay your bill on time. If you are 60 days delinquent, the teaser rate can be withdrawn.
It’s also important to note that the teaser rate may be different for balance transfers, and balance transfers may not have a teaser rate. At the end of the promotion period, the regular rate can be significantly higher.
If you’re looking to transfer a balance, you need to do a little math to determine whether it’s worth the switch. Ask the following questions before you apply:
- What fees will be charged? Be sure to ask about application fees, balance transfer fees, and the annual fee.
- What is the balance transfer APR? How long does this rate last? What will your monthly payments need to be to clear your balance before the rate increases? How much can you afford to pay each month?
- What will happen if you aren’t able to pay it off before the teaser rate expires? What will the rate be after that time?
- What will your total fees and interest be?
Armed with information on how much your balance transfer is going to cost, you can do some comparison shopping.
The best advice we can give you remains the same – always think your decisions through, ask questions, compare different opportunities, and so on. This way, you’ll ensure you won’t get into any unpleasant situations you could’ve easily avoided.
Still looking for more? Feel free to check out our comprehensive personal finance guide to learn more about managing your budget and staying financially healthy.