As your life changes, so should your credit cards. The travel credit card you used during your university gap year might not suit you after you settle into a full-time job, marry and have a family. A cashback credit card might be better.
You can ask your card issuer to switch you to a more suitable credit card – or in many cases, the best deals are only available if you get a new card from a new issuer. If you want the cards you carry to fit your life, there are five things you need to know before you change a credit card:
Know what kind of card you need
Buying a home or car soon? Don’t apply for a credit card
The card issuer might turn you down
That 0% introductory rate is only temporary
Be smart about miles and rewards
Before you apply for a new card, it pays to do a little reconnaissance, says John Breyault, vice president of public policy, telecommunications and fraud for the National Consumers League.
If you want a cashback card for everyday purchases like groceries and petrol, a supermarket reward card might be a good fit. If you’re looking at getting a travel or airmiles credit card, make sure it works with your favourite airline and hotel.
If it’s for a balance transfer, you have to be sure the credit limit on your new card is high enough for the amount you want to transfer. If not, “your request for a new card so you can transfer that balance isn’t going to work,” says Linda Sherry, director of national priorities for Consumer Action.
After you’ve done your research and decided which card you want, hold off on applying if you plan to make a big purchase, like a home or car, within 12 months. If you’re selective with applications, you can get what you want and minimise potential damage to your credit score.
When you ask for a new account or an increase to your credit limit, the issuer does a hard search into your credit history – and that can lower your credit score.
But if you have good credit, a lengthy credit history and a number of accounts, a hard search should shave only a few points off your score, says Ethan Dornhelm, vice president for score and analytics at Fair Isaac Corp., developer of the FICO credit score.
Be prepared: Your issuer might not agree to give you another card.
“If you have a £10,000 credit limit with one company, they may not want to give you another (card) with a large credit limit,” Sherry says.
You could run into the same problem with a different card issuer if you have a lot of credit available already. “Take stock of what you have, because that is going to affect what they give you,” Sherry says.
You may want to close some of the card accounts you’re not using, she says. “Because available credit is really what scares them.”
But don’t close out your oldest accounts, Sherry says, because that credit history helps your score.
Dornhelm says to look at your available credit versus how much you’re using every month. This is your credit utilisation ratio. For example, if you have £10,000 credit available across all of your credit cards and overdrafts, but you only use around £2,000 of that, you have a credit utilisation ratio of 20%. Lenders want to see a low percentage, so if closing accounts pushes your credit utilisation ratio above 30%, that could hurt your chances of getting a new credit card.
A super-low interest rate that comes with a new card, such as 0% on balance transfers or purchases, is called a teaser rate. Depending on the card and your credit score, that introductory rate might last for just a few months or as long as three years. After the teaser rate ends, the card’s interest rate will revert to the card’s standard APR, which is usually between 20% and 35%.
Be careful with teaser rate cards: if you fail to make the minimum monthly repayment, or go over your credit limit, the card issuer can immediately cancel your low-interest deal and put you onto the card’s standard APR. If you’ve just transferred a few thousand pounds, you’ll be on the line for some very large interest repayments.
If you want a balance transfer card, do the maths before you apply. Breyault says to ask these questions:
How much will you pay in fees? Usually, the longer the teaser rate duration, the higher the fee.
What’s the balance transfer APR, and how long will it last?
How much would you pay each month to clear the balance before the teaser rate expires, and what’s the total in fees and interest?
If you can’t pay off the balance during the teaser-rate period, what will the ongoing APR be?
How much could you afford to pay monthly, and how long would it take to pay off the balance?
What would be your total payout, including fees and interest?
When you answer those questions, you’ll know the true cost of a balance transfer card and can comparison shop, Breyault says.
Need an airmiles card?
Miles are almost a form of currency, and the issuer or the airline decides what a mile is worth, Breyault says. “And those terms can change very quickly.”
If you’re trading a rewards card (or a card that gives any non-cash reward) for another card that better suits your life, Breyault says to ask these questions: If you close out a rewards card, what happens to the miles or points you’ve accrued? Do you lose them? Will they be accessible for a certain amount of time, and does the expiration date suit you? Or, can you get them transferred to another card?
“Those miles are really money in the bank for you, so the big question is, what happens to them?” Breyault says. “Do you have to cash them out after a particular time?”