Navigating credit card changes: Understanding credit card downgrades

Quick insights

• Downgrading a credit card may be a helpful choice when considering your current financial situation and lifestyle.
• You may need to be in good standing with your lender to be eligible for a downgrade.
• A credit card downgrade may come with adjustments that you should prepare for, such as new credit limits and terms.

If you’re wondering how to downgrade a credit card, you’re in the right place. Below we will review how the process works and the impacts it could have.

What is a credit card downgrade?

A credit card downgrade happens when you choose to switch from your current credit card to a different card that’s offered by the same issuer; it typically has a lower or no annual fee and may also have fewer benefits. You might decide to do this for a few reasons, such as the card no longer justifying its costs or wanting to reduce expenses such as annual fees.

The pros and cons of downgrading a credit card

Pros:

• The potential for lower annual fees
• Helps preserve credit history by not closing the credit card account
• Possibly easier to manage (for example, if your card came with a complex reward structure)

Cons:

• Loss of certain benefits such as premium rewards and perks
• Lower earning potential, such as earning fewer points
• Loss of potential future offers

How to downgrade a credit card

Eligibility check

First, you may need to confirm with your credit card issuer if you are eligible for a downgrade. Eligibility can depend on your credit history, account standing and the specific policies of the issuer. For example, you may be denied a downgrade if your current credit card account is in poor standing due to  late payments. You should refer to your card’s terms, conditions and policies or reach out to your lender to see if you are eligible for a credit card downgrade.

Initiate the request

After you’ve been deemed eligible for a downgrade, you may have multiple card products that you can switch to—consider selecting one better suited to your current financial situation or spending habits. This involves comparing annual fees, interest rates, reward structures, benefits, and other relevant features. Then, initiate the request through your issuer’s website or by calling the customer service line.

Transition process

After the product change has been approved, your issuer will send you the new card along with any changes to your terms. In some cases, the account number may remain the same, and the credit history associated with the original card continues to contribute to your credit score.

You might need to adjust to changes such as reduced rewards or cash-back rates. It can also be important to update any automatic payments linked to the original card, as the card details might change.

How a credit card downgrade might impact your credit score

Downgrading a card may have some impact on your credit score depending on your standing and the new terms of your card, such as having a lower credit limit. This is because your credit utilization ratio, the amount of credit you use against your total available credit limit, is an important factor in determining your score. For example, if you go from having a higher credit limit of $10,000 to a card that has a limit of $8,000, you may have a higher credit utilization ratio, which could negatively impact your credit score.

Additionally, keeping the account active and in good standing can help to prevent a negative impact to your credit score. If you begin missing or making late payments, you could hurt your score over time. You can switch credit cards without hurting your score by maintaining healthy financial habits, such as keeping your credit utilization ratio to about 30% or less and making your payments consistently on time.

Switching credit cards within the same company

Depending on your card’s terms, you may be able to switch credit cards within the same credit card company. It may even be beneficial, as staying within the same company may help avoid opening a new account elsewhere, which could temporarily hurt your credit score.

Additionally, staying within the same credit card issuer can help maintain your already-established relationship and preserve any current customer benefits.

With any credit card switch, consider the timing, compare the benefits and review the terms and conditions of the card.

In conclusion

There may be a point in your life where downgrading your credit card makes sense for your financial needs. If you are in good standing with your credit card issuer, they may approve the downgrade and transition you to a new card that could come with fewer benefits and fees. As with any transition to a new card, make sure you review the terms and conditions so that you can prepare for the changes that will arise, such as lower cash-back rates or a change in credit limit.