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Switching credit cards: what you need to know

Thinking of switching credit cards? Changes in your financial situation or spending habits might lead you to rethink the plastic in your wallet. You might be wondering if you can reap better rewards, reduce fees, or find lower interest rates elsewhere. Thankfully, whether you’re looking to upgrade, downgrade, or apply for a new card entirely, the process is a lot easier than you think. 


Reasons to switch credit cards:

Many factors can influence your decision to switch out your credit card, such as your credit score, income, changes in employment, or shifts in your lifestyle. Here are a few common reasons customers consider a switch:

  • Improved financial standing: Your income and/or credit score has improved since your last card and you might now be eligible for one with better rewards, improved terms, or a lower interest rate.
  • Mismatched benefits: The benefits of your current card no longer align with your lifestyle. For example, a travel credit card might not make sense if your travel frequency has changed. 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.
  • Attractive bonuses and rewards: Welcome offers and rewards have piqued your interest in a new card.
  • Budget friendly choice: You’re currently budgeting and a card with lower or no fees is appealing.

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, including credit score, credit rating, employment status, and income, contribute to your eligibility. 

While a denied application won’t have a major effect on your credit, a credit inquiry by the provider could lead to a minor score decrease. 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. Generally, most cards require a credit score of at least 660 for eligibility, while a higher-tier card might require a score of at least 725. 

Likewise, your employment status and income are important. Some cards require a minimum annual income, so it’s best to check your qualification prior to starting the application process.

Thankfully, Ratehub’s CardFinder offers a convenient way to understand your approval likelihood by answering a few short questions.

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Understanding the impact of your credit score on credit card approval

Does upgrading your card or applying for a new one hurt your credit score? The short answer is: it's possible, depending on your situation. Around 30% of your credit score is influenced by credit utilization, which represents the amount of credit you have vs. the amount you use. Your credit utilization should be no higher than 30%. For example, if your credit limit is $6000, try not to exceed $1800 before paying 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 your spending isn't adjusted accordingly.

Does holding multiple credit card harm 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. Prioritize cards with favourable interest rates to steer clear of accruing more interest than principle. 

Worried about paying off your balance each month? A high-interest credit card could cost you hundreds if not thousands of dollars. In this case, a low-interest card could be best. While their rewards may be modest, prioritizing paying off debt over collecting points is the right way to go. Promotional low interest rates are common, but ensure you have a solid payment plan in place to make the most of them. 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 for your new 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 history of missed payments or are trying to get out of debt. Opt for a no-fee credit card instead. 

If you’re a frequent user, however, rewards cards offer considerable benefits. Expect a more substantial annual fee for access to premium perks. A savvy shopper will look for big sign-up bonuses as part of the package deal.

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 (providing a percentage of your spending back), 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%). If you don't plan on paying your balance in full every month, the costs might outweigh the perks.

When switching between rewards cards, call your provider ahead of time and ask them what will happen to your existing rewards. If you’re switching between two cards with the same rewards structure (e.g., . upgrading from a 1% cash back to a 3% cash back card), 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 a different bank

Are you intrigued by a welcome bonus and considering opening a credit card with a different bank?  You have the freedom to take your business elsewhere. However, be aware of potential risks. A credit inquiry could have a negative impact on your score and switching to a new bank means you will be treated as a new customer, which means going through an application process.


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

Balance transfer cards can be immensely beneficial if you're struggling to pay off a high interest credit card and aiming to get out of debt faster.

These cards typically offer a zero interest period for a specified duration upon signing up (usually between 6 to 18 months on average). Using a balance transfer card to help you get debt-free can be a great idea, providing you establish a solid payment plan and adhere to it within the zero interest time frame.

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

Once the promotional period ends and you still have an outstanding balance, 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’re familiar with what to consider (and be cautious of) when switching credit cards, you’re ready to apply!

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

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

To adjust your credit limit on a new card, its advisable to spend six months consistently paying off your statements on time and keeping your credit utilization below 30%. Occasionally, your bank might offer you limit increase. If not, you can request a credit limit increase of your desired amount.

One final thing to remember: ensure that you've updated any automatic payments linked to your old card. While your credit card number may remain the same within the same provider, your expiration date and CVV (the 3-digit code on the back of your card) will likely change. Verify this information before your next billing cycle.


The bottom line

Switching credit cards is pretty straightforward, but it can contain hidden risks 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. Feel free to share your experience by leaving a comment.


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