Do you remember when you applied for your first Credit Card? It’s possible that you only opted for it because it was offered free of cost with your Savings Account. Or maybe you just chose the first card that was offered to you without doing any research.
As time passed by, you upgraded your card based on what your bank offered. Most times these upgrades are offered based on your spending habits. However, opting for them without doing your homework is not a very good idea.
You probably know by now that not all Credit Cards are the same. In fact, each type of card has something unique to offer. And if you are planning to upgrade your existing Credit Card, you ought to weigh the pros and cons first. Here’s how you can go about it.
Let’s begin with the pros of upgrading your card or opting for a new one.
Increased credit limit
One of the most common features of a Credit Card upgrade is an increased credit limit. In fact, some banks may offer more than double your current credit limit. Once your credit limit increases, your overall credit utilisation will decrease, since the ratio of the credit you use compared to the total available credit will certainly decrease (unless you plan to exhaust the new credit limit).
So, if your existing Credit Card has a low credit limit, which you generally exhaust, a higher credit limit is something that will work in your favour.
Additional Reading: The Pros And Cons Of Increasing The Credit Limit On Your Credit Card
More rewards and offers
Upgrades also come with more rewards and offers. For example, if you are currently using a Shopping & Cashback card, an upgrade could help you bag an Airline Credit Card which would totally work for you if you are an avid traveller.
In fact, while upgrading, you can choose a Credit Card with rewards and offers that will best complement your lifestyle. If your first Credit Card is the one that you got free with your Savings Account, it’s likely that you did not check the benefits beforehand.
But, it’s never too late! While upgrading, you can choose a card based on your likes and dislikes. If you roam around a lot in your car, a Fuel Credit Card will work for you. If you love frequent dine-outs, Lifestyle Credit Cards come with incredible offers that are sure to impress you.
So, make sure you choose wisely as there are numerous rewards and offers out there!
Additional Reading: Different Types Of Credit Cards
A better Credit Score
As mentioned earlier, when your credit limit increases, your credit utilisation ratio generally tends to decrease. When your credit utilisation ratio decreases, it positively impacts your Credit Score.
How, you ask? Well, a lower credit utilisation ratio means that your dependency on credit has lowered. Hence, a better Credit Score. Ideally, you shouldn’t use more than 30% of the available credit on your card. If you are currently using more than 30%, an upgrade will help you lower this percentage, thus helping you build your Credit Score.
Easier loan approval
As long as a higher credit limit does not encourage you to spend more, but instead, you use it to improve your Credit Score, your chances of getting a loan improve too. Basically, if your Credit Score gets better, banks and financial institutions will be willing to approve your loan requirements.
Better money management
Oh, yes! You will learn to or will need to good money management if you decide to upgrade your Credit Card or get a new one. Wondering how? Firstly, make sure that the billing cycles of your cards do not clash. So, if your existing Credit Card is billed at the end of the month, the new one can be billed mid-month.
This will help you with effective money management. Also, with more credit, you will need to control the urge to spend excessively, unless you are cool with your monthly budget going for a toss, which we bet you aren’t.
Now let’s take a look at the cons of upgrading your Credit Card or getting another card.
Hike in expenses
Depending on which card you choose to upgrade to, there are chances that there will be an increase in your expenses. The upgraded Credit Card could have higher annual fees than the existing one. What’s more? Penalties charged in case of a late payment or failure to pay the bill could be high too.
If you exhaust and exceed your credit limit, you could attract high penalties as well. So, make sure you check these charges, including the charges for overseas transactions. These expenses could take a toll on your monthly budget.
Additional Reading: Insight On Credit Card Charges!
Looks like you now know the pros and cons of upgrading your Credit Card. Honestly, there seem to be way more benefits than disadvantages. As long as you use your new Credit Card wisely, you have nothing to worry about. So, if you’re looking for a new card, start exploring already!