Upgrading your credit card is an obvious step to take when your income goes up. Here is a checklist which can help you upgrade to better a credit card.
Credit cards are considered incredibly useful as they not only make your daily transactions convenient and simple but are also being used for building your credit score, which can help you avail better loan deals in the future. And, upgrading your credit card is an obvious step to take when your income goes up. Here is a checklist which can help you upgrade to better a credit card:
Most of the credit cards are aimed at a particular type of target group and reward them with specific benefits or reward points on transactions. For instance, while fuel cards offer higher cash back on fuel transactions, shopping cards offer higher benefits on groceries, lifestyle and other retail spends. Similarly, travel credit cards entice frequent travellers by offering higher discounts, reward points and cash back on travel, hotel stay, and dining spends. Also, some credit cards offer up to 5% cash back on utility spends.
Therefore, thoroughly analyse your transactions and spending patterns before opting for an upgrade in credit card. If upgrading your credit card gives you higher benefits on specific transactions which you frequently make, then go for it.
Associated fees and charges
An upgrade to a better credit card may lead to an increase in your card operating expenditure, such as joining fees, annual fees and renewal fees. However, most banks waive off the annual/renewal fees on their credit cards on spending a threshold amount in a year. Alongside, distinct charges such as cash advance fees, late payment fees and over-limit penalty may be levied in case of ATM withdrawals, defaults, and breaching credit limit, respectively. Similarly, a mark-up fee of up to 3.5% of the transaction value is charged on making foreign transactions. Finance charges of up to 47.88% p.a. are levied on ATM withdrawals and non-payment of the entire outstanding credit card balance by the due date. This charge is levied from the date of transaction until the entire bill amount is repaid.
While finance charges must not be the deciding factor when upgrading your card as you must spend only the amount that you can repay by due date, there always remains a possibility of incurring this charge due to negligence or in case of financial emergencies. Thus, always make sure to conduct a cost benefit analysis before opting for an upgrade.
Reward points and various other benefits
Credit card upgradation endows you with special offers and higher rewards such as discounts on future purchases, cash back, airline miles etc. You can also earn higher reward points on a few or all your purchases and then redeem it once when you have accumulated a definite amount basis the reward program. The accumulated rewards can be redeemed for cash back, air tickets, fuel, monthly utility bill, vouchers etc. Also, there are a few credit cards that allow you to pay your bill by redeeming your cash backs or rewards. Therefore, before you upgrade your credit card, you must understand its rewards scheme and benefits well and select the card which works for your current lifestyle.
Upgradation of credit card usually leads to an increase in the credit limit. Higher credit limit can help you meet your financial exigencies by allowing you to swipe for higher spends. Moreover, those having excellent repayment track record are also allowed to avail loans against credit cards, which is nothing, but pre-approved loan sanctioned against your credit limit. These loans have one of the fastest disbursals, with most loans usually sanctioned within the same day of loan application, and their features and costs are almost similar to personal loans. However, as the loan amount is blocked against the sanctioned credit limit, having a higher credit limit will allow you to qualify for a higher loan amount. Any spare credit limit would then allow you to continue with your daily card spends.
Hence, while opting for a credit card upgrade, ask your existing card issuer about the credit limit offered on the upgraded card and opt for a similar card from other card issuers if they offer a higher credit limit.
(The author is Director & Group Business Head-Investments, Paisabazaar.com)