Downgrading credit cards: how and when to do it
I spend a lot of time on the blog talking about applying for credit cards, although that’s potentially not the only way to acquire a credit card that might be on your radar.
In this article, I wanted to talk about another way to do that, which is switching your credit card product. Specifically, I wanted to focus on “downgrading” to another credit card, which can be a way to reduce the annual fees you pay on the cards.
Credit Card Downgrade and Product Switch Basics
the concept is quite simple. Sometimes you may find yourself in a situation where you have a credit card that you no longer want. In these cases, you can either cancel this card or try to replace it with another card.
“Downgrading” a card generally refers to exchanging a card with an annual fee for a card with a lower (or no) annual fee. Similarly, you can also “upgrade” a card from a card with a lower (or no) annual fee to a premium card, although there are fewer situations where this makes sense.
Switching a credit card product is a win-win because it allows you to keep a credit card, as well as your line of credit, without having to apply for a new card.
Over time, the concept of credit card downgrading has become increasingly valuable as card issuers have added restrictions to card approval, such as Chase’s 5/24 rule. This means it can be difficult to get approval for a card directly, while switching products can be much more convenient.
Credit Card Downgrade and Product Switch FAQs
With a basic explanation out of the way, let’s talk about the logistics and frequently asked questions associated with credit card downgrading and product switching. In no particular order…
Do you benefit from the welcome bonus if you switch credit card products?
You usually don’t get the welcome bonus on a credit card if you get it through a product switch. By making a product change, you waive the welcome bonus on a card.
However, credit card companies often have upgrade offers on cards, so if you want to upgrade from a basic card to a premium card, there is sometimes a bonus.
As a rule, it is not as good as the bonus if you apply for a card without a product change (although at the same time there is no credit inquiry in this way either). Everyone has to decide for themselves which offer makes the most sense.
To see what type of offers are available for a product change, you can either log into your credit card online account and see if there are any offers, or you can phone the credit card company .
When can you change a credit card?
You can usually change a card’s product if you’ve had it for at least 12 months. As a general rule, you are not permitted to change a card’s product within the first 12 months of joining.
What happens to your credit history and line of credit if you downgrade a credit card?
When you downgrade your credit card, you usually keep your credit line and credit history, which is good for your credit score. This can be useful for various reasons:
- Having available credit can be key to minimizing your use of credit, which is good for your credit score
- A major factor in your credit score is the average age of your accounts, and this has a positive impact if you keep your credit cards for a long time. downgrading a credit card would not count as “closing” it for these purposes
What credit cards can you downgrade to?
It’s not always that simple. In other words, you cannot simply replace a card with another card from the same issuer. Typically:
- You can often only downgrade to another card from the same card “family”
- You can only downgrade a personal card to another personal card and a business card to another business card
- You can only downgrade a credit card to a credit card and a charge card to a charge card
The only way to know for sure which cards you can switch to is to call the issuer and ask what’s available for your account, or by checking your account online (although this will usually show betting offers upgrade rather than downgrade offers).
You can often expect that if you’ve owned a card for at least a year, you can downgrade to another card in the same card “family”.
What happens to your credit card rewards when you downgrade a credit card?
This is something you’ll want to ask your card issuer when you downgrade, as the answer varies depending on the situation. You usually keep your rewards when you downgrade a card. That being said, point values may change. For example:
- Generally, if you have an airline or hotel credit card, you’ll keep your rewards as usual, even if you downgrade the card; this is because the points are stored directly with the airline or hotel loyalty program, rather than with the credit card company
- If you earn a transferable points currency, you will often keep your points, although their redemption value may change; many transferable points give you more redemption options the more premium your card is so check out my articles that cover this on Amex Membership Rewards, Capital One, Chase Ultimate Rewards and Citi ThankYou
When does it make sense to downgrade a credit card?
If you don’t want a card anymore, I don’t always recommend downgrading. Sometimes it makes more sense to just cancel a card. There is no reason to have “dead weight” in your wallet.
For me, there are a few main circumstances in which you should downgrade a card rather than cancel it outright:
- If you’ve had a card for a very long time, it might be a good idea to downgrade it rather than cancel it, because the average age of accounts is a big factor in your credit score, and you can preserve that history by downgrading rather than canceling it. ‘by canceling a card
- If there’s a card you can downgrade that gives you real benefits you’d take advantage of, it might be a good idea to downgrade it; however, you’d better do it when you think it’s not worth applying for the card directly, either because you’re not eligible for the card or because you think it’s not worth applying for the card. ask for the card
- If you’re still new to credit cards and have a limited credit history, it might be worth trying to preserve your available credit for a while, and therefore stick with a card with no annual fee.
What are some examples of credit card downgrades?
If the above is too complicated or doesn’t quite make sense, let me give a few examples of when it might be a good idea to downgrade a credit card.
For example, let’s say you have the Chase Sapphire Preferred® Card (exam) and the Ink Business Preferred® Credit Card (exam), and decide you no longer want either of those cards because both have annual fees. . Rather than simply canceling one of the cards, you could potentially:
This would be a great option since the cards have no annual fee, have great bonus categories, and it would allow you to get the cards even if you go over the 5/24 limit.
This is just an example where something like this could make sense.
Preserve Ultimate Rewards points when downgrading cards
I get a lot of questions about the logistics of upgrading and downgrading cards that can potentially earn Chase Ultimate Rewards points. This is because the redemption value and the ability to transfer points vary depending on the Ultimate Rewards card you own.
For example, sometimes readers have the Chase Sapphire Preferred® card and want to downgrade it to the Chase Freedom Unlimited®, then request the Chase Sapphire Reserve® card (the order of this is important, as you cannot be approved for Reserve if you currently have Preferred or have received a new cardholder bonus within the last 24 months).
The question is what happens to your Ultimate Rewards points when you upgrade to Freedom Unlimited, since you will no longer have a card that earns “full” Ultimate Rewards points. The good news is that the process is simple. Take the above scenario as an example:
- When you convert your Sapphire Preferred to Freedom Unlimited, your points will automatically transfer; however, these points will no longer be “full” Ultimate Rewards points, but rather points that can be redeemed for a cash back penny.
- Once you’ve requested the Sapphire Reserve (or any other card that earns Ultimate Rewards points), you can then transfer those points to the card, and they’ll become “full” Ultimate Rewards points again.
If you have multiple cards that you are canceling, just be sure to first transfer the points to a card that you are keeping or a card that you are changing products directly.
When you do this, you will temporarily not have access to the points’ full potential, but this issue will be resolved once you open the card that earns Ultimate Rewards points again. It really is a very simple process.
At the end of the line
If you are unhappy with a card you own and are considering canceling it, always be sure to first determine what product change options are available to you. It’s not always worth doing, although there are circumstances when it’s a great option.
If you’ve had a credit card for a long time, it may be a good idea to downgrade it rather than cancel it, to preserve credit history. But beyond that, it can also help you maximize your rewards by switching products to cards that add value to your wallet, but that you might not be able to request directly.
If you switched products or downgraded a credit card, what was your experience?