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When Should You Downgrade Your Credit Card?

While credit card rewards and points are great, sometimes the annual fee just isn’t worth it. In these instances, downgrading to another card may be preferable. Here’s how to downgrade your credit card, when you should consider doing so, and the benefits (plus the downsides) of the process.

What are the Benefits of Downgrading a Credit Card?

Downgrading a credit card can have some significant benefits:

Eliminating Annual Fees

The primary benefit of downgrading a credit card is reducing or eliminating the annual fees you pay. Many premium rewards credit cards come with an annual fee of anywhere between $95 and over $550. These cards also come with impressive signup bonuses, including bonus points or airline miles, for meeting minimum spending requirements.

Most of these premium rewards cards feature in a lineup of several similar cards from the same card issuers. Chase, for instance, offers several tiers of hotel credit cards for Marriott, as well as airline cards with Southwest Airlines and United Airlines.

People who want to get the most out of their credit card might consider applying for one of these premium credit cards, then downgrading to a card with a lower annual fee – or no annual fee at all. This practice can help them save money in the long term while maintaining their lucrative rewards.

Downgrading can also benefit those who previously wanted a card with a high annual fee but now find themselves not using said card at the level that yearly charge requires to make sense.

Avoiding a Negative Credit Score Impact

Closing a credit card account can negatively impact a credit score. When a credit card is closed, that account no longer applies to a person’s credit utilization. This effect, in turn, can raise a person’s overall credit use significantly.

Additionally, closing card accounts lowers the average age of a person’s credit history – also a negative. While the average age of credit is in no way as critical an impactor as credit utilization to a FICO Score (or VantageScore), these two negatives can reduce the creditworthiness of an individual.

For these reasons, downgrading a card with an annual fee to one with no annual fee can help save money and a person’s credit score.

Related Article: Will Paying Off Credit Cards Hurt Your Credit Score?

How to Downgrade a Credit Card

Downgrading a credit card is a fairly straightforward process:

  • Check the issuer’s credit card selection to see if there is a no annual fee option available within the same product line
  • Ensure that any rewards will transfer to the new card
  • If rewards do not transfer, make sure all points/miles/etc. are used before making the switch to a new card
  • Contact the credit card issuer and request a change

When contacting an issuer, make sure to have the name of the card to change, as well as the understanding that any product changes (the technical term) may not be approved.

Some issuers will not allow customers to switch products within the first year – like Chase. Others, like American Express, may forbid switching from a credit card to a charge card.

Related Article: How to Upgrade Your Credit Card

Other Things to Consider Before Downgrading a Card

While downgrading a credit card is a simple process, there are things to consider. Beyond a card issuer rejecting a card switch request, there are other potential negatives for a credit card downgrade.

One of those potential negatives is the issuer reclaiming any rewards or points the account holds. This reclamation is known as a “clawback,” and many issuers use the practice to scare off potential credit card churners.

Finally, too many card downgrades may sour the relationship between the borrower and the bank that issues the cards. Like a clawback, banks might view too many account downgrades and credit card swaps as attempts to game the system. This, in turn, may lead to the bank denying future credit card applications – or even closing accounts with little notice.

Conclusion

Rewards credit cards come in all shapes and sizes. However, the more impressive the bonuses and rewards, the bigger the annual fee. When a card’s yearly cost outweighs the value a cardholder gets from it, downgrading to a no-annual-fee version in the same product line is a great alternative.

Never be afraid to switch to a better-suited version of a credit card. When downgrading a credit card, make sure to understand the process – and potential pitfalls – ahead of time. Always remember that, while banks are happy to help a customer get the product that is right for them, they don’t tolerate customers abusing the system and taking advantage of issuers.

Related Article: Should I Keep My Travel Card If I Can’t Travel Due to COVID-19?

About: Cory
Cory Santos

Cory is BestCards.com's "Jack of all trades" and resident rewards expert, covering all facets of the points game – especially travel, hotels, and airlines. In addition to credit cards, Cory finds that jogging, cats, and memes are essential parts of a balanced day.