Your Credit Card's Annual Fee is Due: Downgrade, Product Change or Cancel?
The Annual fee for your credit card is approaching, and you've decided it's not worth paying to keep the card another year. Perhaps you no longer use the card or want to close the account. Your initial instinct might be to cancel the card, but other options exist: downgrading or product changing the card instead.
Your Credit Card's Annual Fee is Due: Downgrade, Product Change or Cancel?
Before making a decision, let's explore what these options entail and how they work, so you can make an informed choice to cancel, downgrade, or product change your credit card.
What is Downgrading a Credit Card?
Downgrading a credit card means switching to a different card that earns the same type of rewards but has a lower (or no) annual fee. Here's an example:
I previously held the United℠ Explorer Card, which had a $150 annual fee ($0 introductory annual fee for the first year). However, since I wasn't flying with United much, the annual fee wasn't justified. So, I downgraded to the United Gateway℠ Card, which has no annual fee. Both cards earn United Airlines miles, so they're in the same family. I downgraded my card without needing to open a new one, and I maintained my credit history with this card, as it's considered the same account on my credit report.
It's essential to note that not all cards offer downgrade options. For instance, you can't downgrade the IHG One Rewards Premier Business Credit Card because there's no other IHG business credit card, and you can't change between personal and business credit cards.
What is Product Changing a Credit Card?
Product changing means swapping your current card for one that earns a different type of rewards currency. This differs from downgrading, which involves switching to another card within the same family, earning the same type of rewards.
Like downgrading, your account history is preserved when product changing, as you're not canceling your credit card. You can also choose a card with a lower annual fee if that's your goal. Both Bank of America and Citi allow you to product-change a credit card to one that earns a completely different type of rewards.
For example, I product changed the Air France-KLM World Elite Mastercard to the Bank of America Unlimited Cash Rewards credit card. In another instance, I changed the Citi / AAdvantage Platinum Select World Elite Mastercard to the Costco Anywhere Visa Card by Citi. By product changing, I was able to preserve my credit history while switching to a card that costs me nothing to keep open year after year.
Should I Downgrade, Product Change or Cancel a Credit Card?
Now that you understand the differences between downgrading, product changing, and canceling a credit card, you can make a well-informed decision based on your individual circumstances. Consider factors such as:
1. Your credit history and credit score: Closing an account can potentially harm your credit utilization ratio and score, especially if you have other credit accounts with high balances.
2. The annual fee and your usage: If you don't use the card enough to justify the annual fee, downgrading or product changing might be a better option.
3. The new card's terms and benefits: Ensure the new card aligns with your spending habits and rewards preferences.
4. The credit card issuer's policies: Some issuers may have restrictions on downgrading or product changing certain cards.
Ultimately, carefully weigh your options and consider your financial goals before making a decision. Canceling your card might be the simplest choice, but downgrading or product changing could help you maintain a healthy credit history while saving on annual fees.