When to trade your starter card for a better one
By Dawn Papandrea
October 5, 2015
How do you know when the time is right to say goodbye to your starter credit card and find one with more beneficial interest rates, travel perks, cash-back rewards and other terms that you can really begin to maximize?
It's really a matter of following three simple steps:
- Know where you stand.
- Decide what benefits you want from your new credit product.
- Take the time to do the research to find the card that best matches your needs.
Here are three questions to ask:
What's your credit history?
Take stock of your past credit behavior. If your credit score has significantly increased since you first became a credit user, you likely will qualify for a card with more bells and whistles. If you've paid your bills on time consistently, and don't carry a high balance, your credit history should reflect positively on that good behavior.
You may have even passed a credit threshold from when you got your first card. “If for your first card you had a 650 credit score, and now you have a 750, you're going to qualify for a lot of products,” says Matthew Goldman, CEO and co-founder of the credit card optimizer software company Wallaby Financial.
If for your first card you had a 650 credit score, and now you have a 750, you're going to qualify for a lot of products.”
CEO and co-founder
of Wallaby Financial
How can you check? You can request your free credit report each year from the three major bureaus (Experian, Equifax and TransUnion) via AnnualCreditReport.com, and for about $20 each, you can purchase a FICO score from each at myFICO.com. There are also opportunities to get a free credit score online, although they are not all FICO scores, which are most commonly used by lenders.
Landing a new job can put you in prime position for card shopping. “You might be making more, traveling more, spending more. A lot might change when your job situation changes,” Goldman says.
From a credit issuer's perspective, a bump in salary opens doors to more premium cards and a higher credit line.
Sometimes the timing may just be right. Keep an eye on your mailbox, says Matt Freeman, manager of credit card products for Navy Federal Credit Union. “Issuers are constantly out there looking for prospects. If you notice that you're getting more offers in the mail, it could mean more organizations are deeming you worthy for an upgrade,” he says.
Which card perks would work for you?
If you don't use credit cards enough to rack up rewards points for free flights or hundreds of dollars in cash back, you might wonder if upgrading to a new card is worth your time. In short, the answer is yes. That's because a new card can bring money-saving perks (fewer fees, lower APRs) and access to cardholder benefits you hadn't considered. Here are a few fees, interest rates and benefits to look for:
Fees – Depending on your travel habits, choosing a card that does not have foreign transaction fees can result in significant savings, says Goldman. Other fees to evaluate include annual fees and late fees. Travel cards often come with annual fees, as opposed to cash-back cards. Some cards waive the first late fee. The general rule, unless you are a heavy traveler, is to find a card with the least or lowest fees possible.
Interest rates – “If you plan to use a card for larger purchases and may carry a balance, interest rate is important to you,” says Freeman. Some new cards come with introductory 0 percent interest rate offers for a specific time frame (six months to 12 months or more), 0 percent balance transfer deals, etc. If you're looking more for the opportunity to earn rewards via a co-branded card with an airline or hotel chain, for example, note that these more aggressive rewards programs tend to have higher interest rates and, most likely, an annual fee. However, if you pay your balance in full each month, the interest rate won't matter.
Cool features – There are a lot of add-on card perks that people forget about, says Goldman. “Things like airline lounge access, free FICO scores, no baggage fees, rental car insurance,” he says. Freeman says that one Navy Federal card – like other cards — comes with the perk of having your very own concierge to help you book travel and accommodations.
If you plan to use a card for larger purchases and may carry a balance, interest rate is important to you.”
— Matt Freeman,
manager of credit card products
for Navy Federal Credit Union
How to narrow your options?
Consider your spending behavior to help pare the new card field. People tend to spend more in certain categories, whether it's on office supplies, gas, groceries, online shopping, department stores or travel, says Goldman. “It's about understanding if there is a category in which you have higher-than-average spending, and if there is a card that matches that,” he explains.
If you use credit more generally, a cash-back card can help you to get the most out of every dollar you spend. “For most of them, you can earn up to 2 percent cash back every day, and you don't have to think about it,” says Goldman.
Once you figure out the category of card you like, it's time to do your homework. If you're happy with your current issuer, start there. “Call and say ‘I'm thinking of getting a new card. What are some offers you can give me?” says Goldman.
It's in your best interest to do some sleuthing to see if there are better products from other issuers, too, using credit card comparison sites like this one.
Once you find a card for which you meet the qualifications, it's time to apply. You can do so online, by phone or via mail. If you've done your homework well, you'll soon have a new card to add to your wallet.
And then it's just smart to reassess your card options every year. No matter whether you land a new job, notice a big increase in your credit score or just want to see what else is out there, Goldman recommends performing maintenance on your wallet annually.
“Ask: Are these cards working for me?” he says. “Is there something out there that's better?”