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Switching Credit Cards: What You Need To Know

Are you considering switching credit cards? While it isn't a common event for most people, changes in your financial status or purchasing patterns may cause you to reconsider the plastic in your wallet, wondering whether you might get greater rewards or pay less fees and interest somewhere else. Fortunately, whether you're upgrading, downgrading, or applying for a new card, it's a lot easier than you may imagine.

Switching credit cards: to-do's

Many variables might affect your choice to transfer credit cards, including your credit score, income, job changes, or general lifestyle changes, but here are a few typical reasons people contemplate switching:

Since your prior card, your income and/or credit score have improved, and you're now eligible for one with greater rewards, conditions, or a reduced interest rate.

The perks of your current card are no longer applicable to your lifestyle. If you don't travel as often as you used to, a travel credit card isn't really useful. Perhaps you've recently welcomed a new baby into your family and discovered that buying diapers and formula using cash back dollars can save you a lot of money.

Sign-up bonuses and incentives for a new card (like this one from BMO, which will earn you 4, 050 points – worth $350 in cash – when you sign up for their Eclipse Visa Infinite card) may pique your curiosity.

You're on a tight budget right now and want a card with minimal or no fees.

There's a lot to consider when moving to a new card, so we've put up a checklist to help you get started. 

Knowing your credit card application eligibility

Before attempting to alter your card (or apply for a new one), you should consider whether you are qualified. Eligibility is determined by a number of variables, including credit score, credit rating, employment status, and income.

While having an application refused will not have a significant impact on your credit, if the provider decides to do a credit inquiry, you may lose a few points, so it's better not to risk it unless you're certain you'll be accepted. Checking your own credit score has no negative consequences, so you should have a current image of your credit before applying for a card. To be eligible for most cards, you'll need a credit score of at least 660, and if you want a higher-tier card, you'll need a score of at least 725.

Similarly, work position and income are critical. Some cards have a minimum annual income requirement, so check to see whether you qualify before beginning the application process.

Thankfully, by completing a few simple questions on Ratehub's credit card table, you can determine your chances of acceptance.

How your credit score impacts your credit card approval

Is it true that updating your credit card or applying for a new one would lower your credit score? The simple answer is yes, depending on your circumstances. Credit usage, which indicates the amount of credit you have vs. the amount you utilize, accounts for about 30% of your credit score. You shouldn't spend more than 30% of your credit limit before paying off your amount, thus if your credit limit is $6000, you shouldn't use more than $1800 before paying off your balance. Having a larger credit limit will improve your credit score as long as your expenditure does not exceed that limit. If you downgrade to a card with a smaller limit, on the other hand, you risk damaging your credit score if you don't cut back on your spending to match.

Is it true that having numerous credit cards can hurt your credit score? No, but it also won't necessarily assist. It all depends on how you want to employ them. The number of cards you have has a far less impact on your credit score than good behaviors like paying your bills on time and maintaining a healthy credit usage ratio.

What you need to know about credit card interest

One of the most important aspects to consider when picking a new credit card is interest, especially if you have a habit of carrying a monthly debt. A higher interest rate might rapidly put you in the weeds if you don't pay off your card in full every billing cycle. Paying more interest than principle can only result in greater debt, so select a card with an interest rate that will benefit you.

Are you concerned about paying off your debt each month? A high-interest credit card might cost you hundreds, if not thousands of dollars, so a low-interest card would be a better option. Their incentives aren't great, but if you're more concerned with staying out of debt than accumulating points, this is the way to go. Furthermore, several lenders provide a promotional low interest rate. These can be beneficial if you can utilize them to pay off your debts before the normal rate kicks in, but you must have a strong payment plan in place before you start. To find out how long the promotional period lasts and what the usual interest rate will be once it ends, read the small print or call the supplier.

Pay attention to credit card fees

Your new credit card's yearly cost will be determined by your income level and projected card usage. While larger fees provide better results, it's pointless to spend an average of $120 if you have a history of skipping payments or are attempting to get out of debt. Get a no-fee credit card instead. Being debt-free will bring you benefits.

Rewards cards, on the other hand, have a lot to offer if you're a frequent user. If you want high-end amenities, you may expect to pay a higher yearly price. A wise consumer will search for a package offer that includes a large sign-up bonus.

Also, keep in mind that accepting high-end rewards cards has a greater cost for retailers and small enterprises. This is one of the reasons why some businesses refuse to take American Express. While they offer some of the greatest rewards programs available, their merchant fees are the highest of any card.

Rewards credit cards are great (but with a caveat)

There are three types of rewards cards to choose from: loyalty points (e.g. Aeroplan, Air Miles, Marriot Bonvoy), cash back (which gives you a percentage of your money back depending on where and how much you spend), and travel rewards (which gives you a percentage of your money back depending on where and how much you spend) (allowing you to redeem points towards airline tickets).

These cards, however, come with an annual fee and a higher interest rate (typically about 19.99 percent), so if you don't intend on paying off your amount in full every month, you may find yourself in a scenario where the cost outweighs the benefits.

When transferring from one rewards card to another, it's a good idea to phone your issuer ahead of time and inquire about the status of your existing awards.

You should be able to keep your previous rewards if you transfer between two cards with the same rewards structure (for example, a cash back card that offers you 1% back and a cash back card that provides you 3% back).

If you're transferring from a cash back card to a travel card, though, phone your issuer and ask what will happen to your rewards in the future.

Switching credit cards with the same bank

Switching credit cards with your existing supplier is the simplest option. Because your new card will be linked to your existing account, you won't need to take out an application or undergo a credit check.

One disadvantage is that, as a current client, you are unlikely to be eligible for any sign-up bonuses. If you are new to a loyalty program, you may be eligible for specific signup incentives depending on your bank (eg. switching from a cash back card to an Aeroplan card for the first time).

Each bank is different, so it's always a good idea to ask a representative about their unique policies.

Switching credit cards with a different bank

A sign-up incentive piques your interest, but can you obtain a credit card with a different bank? Absolutely. You have every right to take your company there, but you should be aware of the dangers. You might be exposed to a credit investigation, which could lower your credit score. You'll also be treated as a brand-new client, which means you'll have to go through an application procedure.

The credit card to help with debt: Balance transfer credit cards

Balance transfer cards are those that offer no interest for a limited time. Using a card like this can be helpful if you’ve been struggling to pay off a higher-interest credit card and would like to get out of debt faster.

These cards typically waive balance transfer fees (usually around 3-5 percent of your balance) and offer no interest for a specified period after signup (6 to 18 months on average) (6 to 18 months on average). Using a balance transfer card to help you get debt-free can be a great idea, providing you’ve got a solid payment plan and a willingness to stick to it within the specified time frame.

If not, you could be in for some nasty surprises.

If your promotional period ends and you’ve still got a balance to pay off, a new interest rate (sometimes as high as 29.99 percent ) will take its place. Other mistakes, such as late payments and exceeding your credit limit, can also cause the deal to be void immediately, so tread carefully.

How to apply for a credit card

You're ready to apply now that you know what to look for (and avoid) while switching credit cards.

The easiest method to do this is online (use our data-driven eligibility checker first to determine whether you qualify for your preferred card), although calling a customer service person can also help. You'll be able to obtain answers to particular queries, and if you're a current client, you'll be able to access additional benefits that aren't available on your bank's website.

It usually takes 5-7 days to find out if you've been authorized, but it might take up to 30 days in rare circumstances. Instant-approval cards (like as the PC Mastercard or Amex Cobalt) will inform you if you've been accepted right away if you apply online, but you'll still have to wait 5-7 days for your card to arrive.

If you want to increase your credit limit on a new card, you need wait six months to pay off your bills on time and ensure that your credit utilization does not exceed 30%. Your bank may contact you with an offer to boost your credit limit in some situations. If not, it's entirely up to you. Request a credit limit increase of your desired amount online, over the phone, or in person at your local bank.

Last but not least, make sure you've changed any automated payments that are still tied to your old card. If you're switching cards within the same provider, your credit card number will generally remain the same, but your expiry date and CVV (the three-digit code on the back of your card) will likely change, so make sure that information is up to date before your next payment month.

The bottom line

Switching credit cards is typically a simple procedure, but depending on how you switch and whose card you move to, there may be hidden hazards.