Credit cards are important financial tools which are a lot more than a convenient payment method. If chosen correctly and used responsibly, credit cards can boost your financial health and fetch you great deals on your purchases with cashback and discounts.
Basic credit cards, offering limited rewards and features, can be ideal for beginners who are new to using one. However, with time, as your income, credit profile, and spending habits change, you would consider upgrading your credit card to one that offers better rewards, a higher limit, and a host of other perks that are aligned with your changed requirements. But, how can you decide whether or not you need one? Here are some pointers that will help you decide just that.
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When should you upgrade your credit card?
Upgrading your card can get you better rewards and cashback, along with more favourable usage terms, such as lower interest rates or higher credit limits. Here are some instances when you should consider upgrading your credit card:
- Credit score improves
If your credit score has improved significantly since you got your existing card, you could apply for an
upgrade. A higher score will improve your eligibility for an upgraded card offering better rewards,
benefits and terms.
- Spending pattern has changed
If your lifestyle or spending pattern has changed, you can consider getting a card that aligns with your requirements. For instance, if you travel frequently, a card that offers airport lounge access, travel rewards, or travel insurance might be more suited for you.
- Existing card has a limited rewards programme
If your current card’s reward program is not up to your expectations and you are eligible for a better credit card offering more lucrative options.
- Existing card comes with high fees
If you find yourself paying a high annual fee, foreign transaction fee, or interest rate on your existing card, upgrading to a card with lower fees and rates can save you money in the long run.
- Issuer offers you an upgrade
Some credit card issuers provide upgrade options to their loyal customers. If you have maintained a good relationship with your current card issuer, they may offer you an upgrade as a gesture of goodwill.
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When should you avoid getting an upgrade?
While credit card upgrades usually offer benefits that outweigh the fees, you should avoid upgrading to a new card if managing the higher limit being offered goes beyond your budget. For instance, if the upgraded credit card, besides it benefits, charges a higher annual fee, maintenance costs, or transaction fees, it would be ideal to avoid upgrading.
When going for an upgrade, make sure that the potential benefits outweigh the costs associated with the new card. However, if your credit health is weak, you may not be eligible for an upgraded credit card. Improve your credit score before considering an upgrade.
Also, if your current credit limit is sufficient for you to cover your expenses, upgrading solely for a higher credit limit is not advisable. If your credit card usage is low and you don’t avail the existing benefits on your card, avoid going for an upgraded card.
What to consider when going for an upgrade
First, check your eligibility for the upgrade you want. The lender or card issuer will assess your credit history and credit score. They may also request for details related to your income and other debts.
Credit card benefits and perks, such as higher cashback, better rewards, concierge services, complimentary insurance, and higher credit limit, etc., come at a cost. This could be in the form of a higher annual fee, interest, joining fee, ATM withdrawal fee, late payment fee, foreign transaction fee, balance transfer fee, etc. So, find out all charges associated with the new card and do a cost-benefit analysis before applying for the upgrade. Also compare the interest rates of the new credit card with your current one. If you tend to carry over dues from month to month, a card with a lower interest rate would be more ideal for you.
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Should You Upgrade Your Credit Card?
A credit card upgrade usually means a revised, higher credit limit, which also increases your purchasing power. However, should you use it, managing a higher credit limit may not necessarily fit within your budget, which can lead you into debt. However, a higher credit limit is not always guaranteed with a credit card upgrade. Whether or not you get an increased limit will depend on your multiple factors, such as your monthly income, current limit on existing credit cards, other debts, and internal policies of the issuer.
Also, when applying for an upgraded card, pay attention to the terms and conditions of the new or upgraded card. Many benefits such as interest-free balance transfer period or bonus rewards points may only be offered to new customers only and not the existing ones.
A credit card offering a higher limit can turn into a debt trap if you are not careful in using it. To avoid this, make a budget covering your income, expenses, and saving goals. Stick to this budget to avoid frivolous spending. Also make sure to include sufficient funds to pay off your credit card dues in full each month. Additionally, track your credit card spends by reviewing your statements regularly. This can help you in identifying unnecessary or impulse purchases, which, if left unchecked, could lead you into debt.
