Understanding Credit Card Upgrades and Their Impact on Your Credit Score

At O1ne Mortgage, we prioritize consumer credit and finance education. We aim to provide you with the most objective and helpful information to make the best financial decisions. If you have any mortgage service needs, feel free to call us at 213-732-3074. In this blog, we will explore whether upgrading your credit card affects your credit score, the pros and cons of upgrading, and when it might be better to apply for a new credit card.

Does a Credit Card Upgrade Hurt My Credit Score?

Upgrading your credit card generally does not hurt your credit score. When you replace your current card with a new one from the same issuer, it is known as a product change. The account history from your existing card transfers to the new card, usually maintaining the same credit card number, account number, and credit limit. Product changes typically do not require a credit check that causes a hard credit inquiry to appear on your credit report, so upgrading your card is unlikely to affect your credit score.

Once the change is complete, you can begin using your new card and enjoy all the perks and benefits it offers. However, you will no longer receive the benefits provided by your previous card unless your new card also includes those benefits.

Pros and Cons of Upgrading Your Credit Card

There are several reasons you might consider upgrading your credit card. For instance, if you have built a solid credit history with a secured card, it may be time to upgrade to an unsecured version. Or perhaps you applied for your current card when you couldn’t qualify for a rewards credit card, and now that your credit score has improved, you are ready to start earning rewards on your everyday purchases.

Pros:

• Rewards Potential: If your current card does not offer rewards, you may want to upgrade to one that does. Alternatively, you might want to trade in your current rewards card for one with a structure that better aligns with your spending and lifestyle habits.
• Credit Inquiry: There are two types of credit inquiries—soft credit inquiries and hard credit inquiries. Soft inquiries do not affect your credit scores, but you may see a temporary negative effect with a hard inquiry. Most product changes do not require a hard credit pull.
• Age of Credit History: The length of your credit history is one of the factors used to calculate your credit score. The longer you have managed credit, the better. Opening new accounts can reduce the average age of your credit accounts. Because upgrading your credit card does not create a new account, the age of your credit history will not be affected.

Cons:

• Bonus Availability: Some rewards cards offer welcome bonuses for cardholders who spend a certain dollar amount within a specific time after opening the account. If you upgrade your card, you may not qualify for these bonuses.
• Annual Fee: If you upgrade to a premium credit card that charges an annual fee, the fee can offset the rewards you earn.
• Introductory Offers: Some cards offer special low or introductory 0% APR financing that you may not be eligible for when you upgrade.

When to Apply for a New Credit Card

Upgrading your current card has its perks, but applying for a new card may make sense if you want to take advantage of introductory financing or bonus offers. You may also want to apply for a new card from a different issuer if you find a product that is a better fit than anything your current card issuer offers. If you choose to apply for a new card, here are a few things to keep in mind:

• Hard Credit Inquiry: Applying for a new card will generate a hard credit inquiry. Hard credit pulls usually result in a slight dip in your credit score, but the effect is typically temporary. If you plan to apply for a loan to finance a large purchase, such as a house or car, consider thinking twice about applying for new credit until after the new loan is issued.
• Average Age of Accounts: Credit scoring formulas include the age of your credit history when calculating scores. Having a longer history can help improve your score. Opening a new account will decrease the average age of your credit accounts.
• Credit Utilization Ratio: The amount of credit you use compared to the amount you have available is known as your credit utilization ratio. Depending on the model, it makes up 20% to 30% of your credit score, and experts typically recommend keeping your ratio below 30%. Adding another credit card to your wallet can increase your available credit and reduce your utilization—as long as you do not increase your spending.

The Bottom Line

Whether upgrading your existing card or applying for a new one is best for you depends on your individual situation. You can find out if you are eligible for an upgrade by contacting your credit card issuer to learn about payment history, credit, and other requirements. If you decide that applying for a new card is your best option, check your credit report and credit score for free to ensure the information in your credit history is accurate and determine how likely it is that you will be approved.

At O1ne Mortgage, we are here to help you navigate your financial journey. For any mortgage service needs, call us at 213-732-3074. We are committed to providing you with the best service and advice to help you achieve your financial goals.