When you apply for your first credit card, you usually get an entry-level card which comes with basic features. While such cards are good to start your credit journey, they are not designed to offer lucrative benefits such as accelerated rewards/cashback, travel benefits, lounge access, among others. However, over time, as your income increases and your credit score improves, you can upgrade your card to one that offers benefits more aligned with your spending.
Here are a few things that you must know before upgrading your credit card.
Choose a card that matches your spending preferences
Most credit cards are designed to offer significant value-back on a particular category while giving general benefits across other categories of spends. For example, travel credit cards come with features that help save on your travel expenses, such as extra rewards/discount offers on travel bookings, complimentary airport lounge access or free flight tickets. Fuel credit cards, on the other hand, offer value-back on fuel spends. Understand the categories where you spend the most and then upgrade to a card that offers benefits in these categories.
Know the reward details
Once you know the type of credit card you want and have a few cards shortlisted, read about the features offered by each card along with the associated terms and conditions. For example, if you opt for a shopping credit card, you must see how you will get the value-back, that is, whether in the form of rewards, cashback or direct discount.
“If the cards offer the best benefits only on select brands or online shopping platforms, it is best to choose one where the benefits align with your interests. Some credit cards offer a good earning rate but come with a maximum cap on the earnings. So, if you are a heavy spender, you should also check the upper limit on the cashback or reward earning,” says Sachin Vasudeva director & head of Credit Cards, Paisabazaar.
Consider the annual fee on the upgraded card
A credit card with better features would usually carry a higher annual fee than a basic credit card. It is very important to do the cost-benefit analysis to see if the annual fee charged by the bank is justified for the set of benefits offered. Also, credit cards mostly come with an annual fee reversal feature wherein you get the annual fee waived off/reversed if you go beyond a pre-set spending threshold. When you are upgrading the card, you must make sure that the annual fee is justified, or you can easily reach the spending milestone so that the charges are waived/reversed.
Ask for a higher credit limit
When you are upgrading your card, issuers would typically increase your credit limit as well. “A higher credit limit will benefit you in many ways. You get more purchasing power and access to a higher amount in case of a financial emergency. A higher limit would also bring down your overall credit utilisation ratio which would improve your credit score. Do note that the limit increase depends on a lot of factors such as the type of card offered, your current income, etc,” says Vasudeva.
Also try to get more clarity on the status of your current card as well before you get upgraded to a new card. You may have a reward balance or cashback, which is yet to be credited to your card account. When you request an upgrade, ask the issuer whether the reward balance will be added to the new card account, or you need to redeem the same before transition. Clarifying these will ensure that you do not lose the earned reward points on your current credit card.
* If you opt for a shopping credit card, check whether you will get the value-back in the form of rewards, cashback or direct discount
* Do the cost-benefit analysis to see if the annual fee charged by the bank is justified for the set of benefits offered
* When you upgrade your card, issuers typically increase your credit limit. A higher limit will bring down your overall credit utilisation ratio