Upgrading or downgrading your credit card can be a strategic move, whether you’re looking for better rewards, lower fees, or more suitable benefits. However, one of the main concerns people have when making such changes is the potential impact on their credit score. The good news is that, if done correctly, upgrading or downgrading your credit card can be a seamless process that doesn’t negatively affect your credit score. Here’s how you can make the switch while maintaining your credit health.
1. Understand the Difference Between Upgrading and Downgrading Your Credit Card
When you upgrade your credit card, you’re essentially moving from a card with fewer benefits to one with more, typically with higher fees and possibly a higher credit limit. Downgrading involves moving to a card with fewer benefits or lower fees.
In both cases, the key to ensuring no damage to your credit score is to stay within the same card issuer. Switching between cards from the same issuer, instead of applying for a new card, will allow you to maintain the same credit account history.
2. Contact Your Card Issuer
Before initiating any upgrade or downgrade, it’s important to contact your credit card issuer and inquire about the process. Issuers usually allow existing customers to make such changes without a hard inquiry on your credit report, which can impact your credit score. Confirm with them that they will treat this change as a simple account modification.
3. Keep Your Credit Utilization Low
Your credit score is largely influenced by your credit utilization ratio, which is the amount of credit you’re using relative to your credit limit. When upgrading or downgrading your card, the goal is to ensure your credit utilization stays low. This means not using a significant portion of your available credit after the change.
If you’re downgrading to a card with a lower limit, be mindful of your spending habits to avoid increasing your utilization ratio, as this could negatively affect your credit score.
4. Don’t Close Your Old Credit Card Account
When you upgrade or downgrade, it’s essential to keep the same credit account open. If you close your account when switching cards, you might lose your credit history with that account, which can have a negative impact on your credit score. The length of your credit history accounts for a significant portion of your score, so retaining the old account as an active line of credit can be beneficial.
5. Avoid Frequent Changes
If you are considering multiple upgrades or downgrades in a short period, it could raise a red flag with your card issuer or credit bureaus. Frequent changes in your credit profile could negatively affect your credit score, as they may be interpreted as a sign of financial instability or over-leveraging.
Conclusion
Upgrading or downgrading your credit card can be an effective way to better manage your finances, but it’s important to approach it carefully to avoid impacting your credit score. By ensuring that you stay with the same card issuer, avoid closing accounts, and keep your credit utilization low, you can make the change without harm. Always consult your card issuer to ensure that the process will not result in a hard inquiry or other actions that could hurt your credit health.
FAQs
Q. Will upgrading my credit card affect my credit score?
Upgrading your card within the same issuer generally does not affect your credit score, as long as the process does not involve a hard inquiry or closing your old account.
Q. How can downgrading my credit card impact my credit score?
Downgrading may affect your credit score if it reduces your credit limit significantly, which could increase your credit utilization ratio. Keeping your utilization low can minimize the impact.
Q. Is it better to downgrade or close my credit card?
It’s typically better to downgrade your card rather than closing it, as keeping the account open helps maintain your credit history and avoids reducing your credit score.
Q. Does a hard inquiry happen when I upgrade or downgrade my card?
Most issuers perform a soft inquiry when you upgrade or downgrade within the same account, but it’s important to check with your issuer to confirm that no hard inquiry will occur.
Q. How long should I wait before upgrading or downgrading my credit card?
It’s generally advisable to wait at least six months to a year between upgrades or downgrades to avoid appearing as a high-risk borrower to lenders or credit bureaus.