Do not upgrade or switch to a new card only for better offers and rewards. Also consider applicable fees and charges, impact on your credit utilisation ratio and spending habits.
The right credit card is one that aligns with your needs and helps you get significant value back. However, as your finances improve and spending preferences evolve over time, you can choose to upgrade to a better card from the same issuer, instead of applying for a new one. Upgrading to a new credit card can be useful, especially when you have been using a basic credit card for a long time and could now be eligible for a more premium cards.
When you opt for a credit card upgrade, the new card is issued against the same credit card account. Thereby, it is not considered as a new application, and thus does not entail hard enquiry and there is no impact on the credit score. Here we have listed a few scenarios where upgrading or switching to a different credit card might be a good choice.
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When you are eligible for a better card
As beginners, most people get an entry-level credit card with basic benefits and a low annual fee. However, as your income and financial situation improves over time and you build a good credit history, you could qualify for better credit cards with extensive benefits. While entry-level credit cards usually come with basic features, you could switch to cards offering advanced benefits like complimentary lounge access, hotel memberships, low forex markup fee and a higher reward rate. Let’s say you started your credit journey with HDFC Moneyback Credit Card when you were earning Rs 30,000 per month. But now, you are earning Rs 1 lakh per month and you can easily switch to HDFC cards with better and more comprehensive benefits such as HDFC Diners Club Privilege or HDFC Regalia Gold. If your income is even higher, say Rs 2 lakh per month, you could also qualify for premium credit cards from HDFC Bank like HDFC Diners Club Black.
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Card issuers provide upgrade offers to most customers when they qualify for the same. However, not all issuers offer card upgrades on their own, in which case you would need to contact your issuer and request an upgrade.
When the upgraded card offers rewards that are more lucrative
Just as everything else, your spending patterns, needs and habits also evolve over time. The way you have been spending money now will be very different from the way you spend five years later. So sticking too long to a credit card, especially one that you availed as a beginner, could serve you no benefit a little down the line. In such circumstances, upgrading to a better card would be advisable.
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Suppose you have had Axis Bank Neo Credit Card for the last two years, but now you have realised that most of your credit card spends are on Flipkart, Myntra and other partnered brands. In this case, you can consider upgrading to Flipkart Axis Bank Credit Card. Similarly, if you have been using your credit card across a particular category, you can consider upgrading to one with benefits focused on the said category. For example, if you own a general cashback credit card but you mostly need your card for fuel purchases, you can switch to a fuel credit card with the same issuer.
When you are being offered a limit increase with the upgrade
Credit limit is the maximum amount that you can spend using your credit card. As your expenses grow over time, you would require a higher limit. While you can request a limit increase on your existing card as well, there could be cases when the credit limit has been maximised and cannot be increased due to the issuer’s card policies. In such cases, a credit card upgrade could be a smart choice.
For instance, let’s assume you have been using a secured credit card against your fixed deposit of Rs 2 lakh and you can get a credit limit only up to 90 percent of the deposit value. The limit on your existing secured credit card will be Rs 1.8 lakh. Here, you can request your card issuer to upgrade to a card that would provide a higher credit limit. Upgrading to a new credit card in this case will not only get you access to more funds but will also help in improving your credit utilisation ratio, due to increased available credit.
Also, note that credit limit depends on many factors including your monthly income, highest limit on existing credit cards, other debts, etc. So upgrading to another card may not ensure a higher credit limit, if other factors and the issuer’s internal policies do not allow the same.
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Moreover, you should understand that a credit card upgrade might not always offer you a welcome or joining bonus. Also, if you are close to achieving a milestone benefit on your existing credit card at the time of upgrade, it would be better to wait and reach the milestone to avail the advantage. For instance, if you only need to spend Rs 2,000 more to achieve the quarterly benefits, prefer upgrading to a new card later. Lastly, before upgrading, ask your issuer about the reward point balance—whether the points accumulated on the existing card would be transferred to the new card. If not, you would have to redeem the accumulated points before switching.
Thus, simply upgrading to a new card would not help you maximise benefits. It is with a mindful approach that you can deal better with credit cards. Do not upgrade or switch to a new card only for better offers and rewards but also consider applicable fees and charges, the impact on your credit utilisation ratio and spending habits.