If you want to avoid the annual fee on a credit card, canceling isn't your only option. You can also downgrade your credit card by swapping it for a lower-end option in the card issuer's lineup.
In many cases, a downgrade is a better choice than canceling a credit card. Here's a detailed look at downgrading a credit card and figuring out if it's the right way to go.
When you downgrade a credit card, you switch your card for one with a lower annual fee from the same card issuer.
Usually, to change credit cards, you'd need to cancel your old card and apply for a new one. Both of those can reduce your credit score. When you downgrade a credit card, however, your credit is not affected.
Card issuers only let you downgrade to credit cards in the same product line. However, it's not always obvious which credit cards qualify. If you're not sure, the best option is to contact the card issuer.
For example, imagine you have the Chase Sapphire Reserve®, which carries a hefty annual fee. You don't want to pay that annual fee anymore. Here are some examples of downgrade options:
The benefits of downgrading a credit card are:
The drawbacks of downgrading a credit card are:
You may also face a problem if you downgrade a credit card too early. Card issuers sometimes frown on consumers who open cards and downgrade them within the first year. This can be considered a form of gaming the system -- getting a card, usually for a sign-up bonus, and then downgrading it before the annual fee comes around. American Express states in the terms and conditions for its cards that it may take back bonus rewards and close the cardholder's account if the card is downgraded within 12 months.
Some credit card companies won't let you downgrade a credit card at all in the first year. To be safe, even if you're allowed to, avoid downgrading a credit card until you've had it for a year or longer.
Here's the quick, simple process to downgrade a credit card:
The card issuer can approve or deny the downgrade. Downgrades are usually successful, given that you're moving down in the card issuer's lineup.
If the downgrade is approved, the card issuer mails you a new card. In most cases, the card number doesn't change, so you can continue using your old card until the new one arrives.
The decision to downgrade a credit card ultimately depends on whether you think the annual fee is worth it. If you don't feel you're getting your money's worth, a downgrade could be the solution.
These are the typical situations when you should consider downgrading a credit card:
In either case, you could also close the credit card. Canceling isn't necessarily a bad decision if you don't need the card anymore.
You have options when you don't want to pay a credit card's annual fee. A downgrade is ideal for when you don't want to lose the credit card account entirely.
You can downgrade a credit card to another card in the same product line. To do so, call the card issuer and let them know which card you'd like for the downgrade. The card issuer will approve or deny your request.
There are advantages to downgrading a credit card instead of canceling it. The most important are that you won't lose the card's credit line or its account history. If you did, both could decrease your credit score.
Downgrading a credit card won't cause any changes to your credit score.
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