Six points you must check before upgrading your credit card

Naveen KukrejaPaisaBazaar

Today, credit cards are the handiest asset you can have. They provide ready access to money anytime, anywhere. But I wonder how many of us have chosen our credit cards wisely. Usually, our first credit card is linked with our salary account, then as we start purchasing from premium brands or stores, we end up taking their brand card. Later, as telecallers start offering sweet card deals over the phone, we take up those cards as well without much research.

But as experience has taught us, not all credit cards are the same, which often makes us wonder whether we have the right one. And that is when we start thinking of upgrading our credit card or taking a new one. But again, we tend to make the same mistakes we made the first time round. We don’t fully weigh the options, or understand the pros and cons.

Below are the factors you need to take into account when opting for a card upgrade or taking a new card. Pros of upgrading a credit card or taking a new one

1. More credit limitBy upgrading your current card, you can increase the credit limit of that card whereas a new card will raise your overall credit limit. That is, you can spend more without burdening your credit usage.

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2. More value from your spendDepending on the new card or the type of upgrade you opt for, you can benefit from an extensive list of offers and rewards. Plan your new card or upgrade such that it offers benefits on those spends that weren’t covered previously. For instance, if your earlier card just covered fuel spend, you can now opt for a card that offers shopping or fine-dining rewards.

3. Improved credit score As a rule, if your credit utilisation ratio on a card or a combination of cards goes beyond 50%, your credit score takes a hit. So, if you happen to fall in this category, opting for an upgrade or taking a new card makes sense. With this switch, you won’t have to worry about stressing your credit score, provided you keep your expenditure under check. 4. Loan approval becomes easier and fasterIf you do not get swayed by the increase in credit limit and restrict your card usage, lenders will view you as a “safe” borrower. Reason being, limited card usage, coupled with access to more credit, will gradually improve your credit score, enabling you to get loans faster and perhaps at a negotiated interest rate.

5. Better cashflow managementTaking an additional credit card can help you in managing your cashflow better. When taking a new card, ensure its billing cycle is different from that of your other card(s). For instance, if your current card is billed at the end of the month, get your new card to be billed mid-month. This will allow you to split your expenses such that your monthly budget doesn’t go for a toss.

Cons of upgrading a credit card or taking a new one

6. Higher annual fees, penalties and interest rateWhen taking a new card, your total contribution to annual fee increases. The same applies to upgrading a card. An upgrade comes with a hike in the annual fee, along with an increase in penalties levied when you exceed your credit limit, and use your card for ATM withdrawals or overseas purchases. Further, if you fail to pay your bills on time, higher interest rate is levied owing to late repayment.

A word of caution, although upgrading your credit card or taking a new one seems great, don’t do it at the drop of a hat. Frequent purchase or upgrade of cards reflects poorly on your credit score. A lender will view you as a credit-hungry and financially irresponsible customer.

So the next time, think wisely and ensure your new card meets your future requirements.