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Switching Credit Cards: What You Need To Know

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Thinking of switching credit cards? While it’s not a frequent occurrence for most, fluctuations in your financial situation or buying habits may find you rethinking the plastic in your wallet, wondering if you can reap better rewards or pay less fees and interest elsewhere. Thankfully, whether you’re upgrading/downgrading or applying for a new card entirely, it’s a lot easier to do than you think.

Switching credit cards: to-do's 

Many factors can influence your decision to swap out your credit card: credit score, income, changes in employment, or general lifestyle shifts, but here are a few common reasons customers consider a switch:

  • Your income and/or credit score has improved since your last card and you’re now eligible for one with better rewards, better terms, or a lower interest rate.
  • The current card’s benefits no longer apply to your lifestyle. A travel credit card doesn’t make a ton of sense if you’re not travelling as much as you used to. Or perhaps you’ve recently welcomed a newborn into your family and found that using cash back dollars to buy diapers and formula can lead to big savings.
  • You might be interested in sign-up bonuses and rewards for a new card (like this offer from BMO which will net you 4, 050 points – a cash value of $350 – when you sign up for their Eclipse Visa Infinite card).
  • You’re budgeting at the moment and would like a card with lower-to-no fees.

There’s a lot to think about before you decide on switching to a new card, so we made you a list to help guide you through the process.

Knowing your credit card application eligibility

The first thing you should think about before trying to change your card (or apply for a new one) is whether you’re eligible. Several factors play into eligibility, including credit score, credit rating, employment status, and income.

While having an application denied won’t have a major effect on your credit, you could lose a few points if the provider decides to conduct a credit inquiry, so it’s best not to risk that unless you’re sure you’ll be approved. Checking your own credit score won’t have a negative impact, so you’ll want to have an up-to-date picture of what your credit looks like before applying for a card. In general, you’ll want a credit score of at least 660 to be eligible for most cards, and a score of at least 725 if you’ve got your eye on a higher-tier card.

Likewise, employment status and income are also important. Some cards require a minimum yearly income, so it’s best to check if you qualify before starting the application process.

Thankfully, using Ratehub’s credit card table, you can gauge your likelihood of approval by answering a few short questions.

How your credit score impacts your credit card approval

Does upgrading your card or applying for a new one hurt your credit score? The short answer is: possibly, depending on your situation. Around 30% of your credit score comes from something called credit utilization, which represents the amount of credit you have vs. the amount you use. Your credit utilization should be no higher than 30%, so if you’ve got a credit limit of $6000, you don’t want to use any more than $1800 before you pay off your balance. Providing your spending doesn’t increase above that threshold, having a higher credit limit will bump up your credit score. Conversely, if you’re downgrading to a card with a lower limit, you’ll be running the risk of lowering your credit score if you’re not reigning back your spending to match.

Will having multiple credit cards damage your credit score? No, but it won’t necessarily help, either. It all depends on how you use them. Good habits like paying your statement on time and keeping a healthy credit utilization ratio have a much greater effect on your credit score than the amount of cards you have.

What you need to know about credit card interest

Interest is one of the biggest factors to consider when choosing a new card, especially if you’re someone who tends to carry a monthly balance. If you’re not paying off your card in full every billing period, a higher interest rate can quickly put you in the weeds. Paying off more interest than principal will only yield higher levels of debt, so choose a card with an interest rate that’s going to work for you.

Worried about paying off your balance each month? A high-interest credit card could cost you hundreds, if not thousands of dollars, so you may want to consider a  low-interest card. Their rewards may be skimpy, but if you’re more interested in avoiding debt than collecting points, it’s the right way to go. In addition, many providers offer a promotional low interest rate. These can work to your benefit if you can use it to pay off your balances before the regular rate kicks in, but you need to have a solid payment plan going in. Read the fine print or call the provider to find out how long the promotional period lasts, and what the normal interest rate will be once that ends.

Pay attention to credit card fees

The annual fee you’ll want to pay on your new credit card depends on your income level and expected card usage. While higher fees will reap better rewards, there’s no use spending $120 on average if you have a bad habit of missing payments or are trying to get out of debt. Instead, get a no-fee credit card. Your rewards will come from being debt-free.

If you’re a frequent user, however, rewards cards have a lot to offer. Just expect a more substantial annual fee if you’re interested in high-end perks. A savvy shopper will look for big sign-up bonuses as part of the package deal.

Also, be aware that merchants and small businesses pay higher fees to accept high-end rewards cards. This is why some don’t accept American Express. While they generally have some of the best rewards programs out there, their merchant fees are higher than any other card.

Rewards credit cards are great (but with a caveat)

When it comes to rewards cards, there are three types to choose from - loyalty points (eg. Aeroplan, Air Miles, Marriot Bonvoy), cash back (which gives you a % of your money back depending on where and how much you spend), and travel (allowing you to redeem points towards airline tickets).

However, these cards also come with an annual fee and a higher interest rate (usually around 19.99%), so if you’re not planning on paying off your balance in full every month, you could find yourself stuck in a situation where the cost outweighs the perks.

When switching from one rewards card to another, it’s wise to call your provider ahead of time and ask them what will happen to your existing rewards when you change cards.

If you’re switching between two cards with the same rewards structure (ie. a cash back card that gives you 1% to a cash back card that gives you 3% back) you should be able to hold on to your existing rewards.

But if you’re switching from a cash back card to a travel card, call your provider and get a straight answer about what will happen to those rewards going forward. To find the best rewards card for you, use our rewards calculator to compare.

Switching credit cards with the same bank

The easiest way to switch credit cards is by doing so with your current provider. Because your new card will be under the same account, you most likely won’t have to fill out an application or be subjected to a credit check.

One drawback is that, because you’re an existing customer, you most likely won’t be eligible for any sign-up rewards. Depending on your bank, you may be eligible for certain signup bonuses if you are new to that particular loyalty program (eg. switching from a cash back card to an Aeroplan card for the first time).

As always, each bank is different, so it’s recommended to speak to a representative about their specific rules.

Switching credit cards with a different bank

You’re intrigued by a sign up bonus, but can you open a credit card with a different bank? Absolutely. You’re well within your rights to take your business there, but be aware of potential risks. You may be subjected to a credit inquiry which could have a negative impact on your score. In addition, you’ll be treated as a brand-new customer, which means going through an application process.

The credit card to help with debt: Balance transfer credit cards

Balance transfer cards are those that offer no interest for a limited time. Using a card like this can be helpful if you’ve been struggling to pay off a higher-interest credit card and would like to get out of debt faster.

These cards typically waive balance transfer fees (usually around 3-5% of your balance) and offer no interest for a specified period after signup (6 to 18 months on average). Using a balance transfer card to help you get debt-free can be a great idea, providing you’ve got a solid payment plan and a willingness to stick to it within the specified time frame.

If not, you could be in for some nasty surprises.

If your promotional period ends and you’ve still got a balance to pay off, a new interest rate (sometimes as high as 29.99%) will take its place. Other mistakes, such as late payments and exceeding your credit limit, can also cause the deal to be void immediately, so tread carefully.

How to apply for a credit card

Now that you’ve learned what to look for (and watch out for) when switching credit cards, you’re ready to apply!

The quickest way to do this is online (use our data-driven eligibility checker beforehand to see if you qualify for your card of choice), but speaking to a customer service representative over the phone can also yield benefits. You’ll be able to get answers to specific questions, and if you’re an existing customer, unlock some extra bonuses that might not be available on your bank’s website.

Typically, you should find out if you’ve been approved in 5-7 days, although in some cases it may take up to 30. If you’ve applied online, instant-approval cards (such as the PC Mastercard or Amex Cobalt) will tell you immediately if you’ve been approved, but you’ll still have to wait 5-7 days for your card to arrive.

If you want to change your credit limit on a new card, you typically want to spend six months paying off your statements on time and making sure your credit utilization doesn’t rise above 30%. In some cases, your bank will reach out to you with an offer to increase your limit. If not, it’s up to you. Go online, give them a call, or even walk into your local branch and request a credit limit increase of your desired amount.

One final thing to remember: make sure you’ve updated any automatic payments that may still be connected to your old card. If you’re changing cards within the same provider, your credit card number will most likely stay the same, but your expiration date and CVV (the 3-digit code on the back of your card) will change, so ensure that information is current before your next billing period.

The bottom line

Switching credit cards is usually a simple process, but it can contain hidden dangers depending on how you’re switching and which card you’re switching to. Do some research and find the best credit card for you using our comparison tool, then leave a comment telling us about your own experience.



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