When to consider adding or replacing a credit card
Monday, 19 August 2019
You probably have at least one credit card in your wallet right now, and chances are you've had it for a while.
According to a survey by creditcards.com, Americans don't switch credit cards often. In fact, 25 million have used the same credit card for a decade, while another 20 million have never changed their go-to card.
This loyalty is admirable. However, in today's competitive world of sign-up bonuses, ever-improving rewards programs and special rate offers, sticking to one card could cause you to miss out on some valuable opportunities.
It makes sense to scrutinize your current card to ensure you have the best card for your needs, and you're maximizing its benefits.
Here are the main card features to consider and compare:
According to Wallethub, the number one reason people switch credit cards is to get a better rate. Because if you carry a balance on your card, a lower rate could save you hundreds — if not thousands — of dollars each year in interest.
Getting a lower rate is so critical, those consumers who are prone to switching cards often make the move for enticing balance transfer and introductory rate offers. While some of these lower rates only last a few months, you could save a bundle if you can pay off new purchases or balance transfers before the rate changes.
Bottom line: Switching or adding a card for a lower rate could be a smart move.
Credit card rewards programs can be valuable if you have the right program and know how to use it. And picking the right rewards program depends primarily on how you use your card.
If you don't travel much, you don't need a miles-based rewards program. But if you have a long commute, switching to a gas rewards card could save you some money.
Bottom line: Switching or adding a card that rewards you for your regular spending behavior could be worth it.
Credit card fees
There are three types of fees you should consider when deciding to add or switch cards.
In some cases, cards with robust rewards programs can charge an annual fee. If you run the numbers and the benefits of the rewards program outweigh the annual fee, it could be worth paying.
Taking advantage of a low-rate balance transfer offer can be a smart way to pay off your credit card balance. In many cases, however, you'll pay a balance transfer fee to get the lower rate. Again, make sure the savings from the low rate outweigh the cost of the balance transfer.
Fewer cards these days are charging foreign transaction fees, which are fees you pay for transactions in a foreign country or purchases from foreign countries. Check out your current card, and if you're paying foreign transaction fees, you might want to switch.
Bottom line: If you must pay a fee, make sure you're getting substantial savings or benefits in return.
In most cases, a higher credit score can qualify you for a lower rate, waived annual fee, sign-up bonus, or a top-tier rewards program.
If you've had your current card for a decade, but your credit score has improved over the last ten years, you might want to check out how your score could earn you valuable benefits and savings.
Bottom line: If your credit score has improved, you could score a much better credit card deal.
Switching, adding and managing multiple credit cards
It can make sense to add or switch cards to help lower your interest rate, avoid fees or take advantage of a rewards program.
But how you manage multiple cards has an impact on your credit score.
Having too many cards open can lower your score. According to CNBC.com, people with high credit scores have around three credit cards.
But closing an account isn't always a good idea. Keeping credit accounts in good standing open for a longer period of time can be beneficial to your score. So, try to keep your oldest credit accounts open, as long as you're not paying fees.
Having the right card — and using it right — is the key
Credit cards can be valuable financial tools when carefully selected and properly managed. With a little research and understanding of how you use your cards, you can make smart choices and reap all the benefits credit cards have to offer.
The content provided is for informational purposes only. Neither BBVA USA, nor any of its affiliates, is providing legal, tax, or investment advice. You should consult your legal, tax, or financial advisor about your personal situation. Opinions expressed are those of the author(s) and do not necessarily represent the opinions of BBVA USA or any of its affiliates.
Links to third party sites are provided for your convenience and do not constitute an endorsement. BBVA USA does not provide, is not responsible for, and does not guarantee the products, services or overall content available at third party sites. These sites may not have the same privacy, security or accessibility standards.
You may also be interested in:
How to avoid bankruptcy
Are you deep in debt? Bankruptcy should be a last resort. Check out our advice for how to manage and overcome your debt without declaring bankruptcy.
Credit or debit?
That's a question we often hear when we're shopping. We may automatically default to one choice, so it's easy to forget that not all plastic is the same.