Key takeaways
- When you downgrade your credit card, your issuer will perform a product change that turns your card into a different one — usually with different rewards-earning potential and a lower or no annual fee.
- Downgrading a card could be a great alternative to canceling a card, but it’s not always the best move.
- You should consider downgrading if you want to stop paying an annual fee and also avoid closing a line of credit, but you should consider canceling if you want to earn a welcome bonus or are trying to cut back on the number of cards you have.
If you chose a credit card for its enticing perks but are no longer reaping benefits that make the card worth its annual fee, you might think that the best course of action is to cancel your credit card — but before you do, you should consider another option. Downgrading your card can help you avoid the negative impacts of closing a credit card while still getting rid of your old card. Here’s how to do it.
What does it mean to downgrade a credit card?
Downgrading a credit card means changing the type of card you have from a higher-tier card, usually with an annual fee, to a lower-tier card that usually has no annual fee and earns less in rewards. Each issuer has their own rules about which cards you’re allowed to downgrade and about what happens to your account when you do.
When to downgrade your credit card
Downgrading isn’t a viable solution if you simply want to cut down the number of accounts you have, but it is a good solution if you’re starting to doubt that paying your credit card’s annual fee is worth it.
Maybe you’re not using the card enough to out-earn your annual fee, or maybe you don’t use the perks anymore. If you have multiple cards with high annual fees, maybe you want to cut them down to one or two.
Downgrading could also be a good solution if the card in question is one of your longest lines of credit. Whatever your situation, there’s no reason to hold on to a credit card that’s taking away money from you rather than putting it back into your pocket.
Pros of downgrading instead of canceling your credit card
By downgrading your card instead of canceling it, you can have the following advantages:
Your credit utilization ratio won’t be affected
For one, your credit utilization can increase, which can negatively affect your credit score. Your credit utilization ratio accounts for 30 percent of your total FICO credit score and refers to the amount of available credit you are using. This number is aggregated from all lines of credit open in your name. Because of this, if you cancel a credit card, your total credit limit across all cards goes down.
Think of it this way: Let’s say you have three credit cards (card A, B and C) with three different balances.
In this scenario, your credit utilization ratio would be 30 percent, because out of your total available credit of $20,000, you’re only using $6,000.
Now, let’s say you cancel credit card B because it has a high annual fee and split the spending from that card between your remaining two cards.
By splitting your expenses across two cards instead of three, your credit utilization ratio would increase to 40 percent.
Do you know your credit utilization ratio?
Want to quickly calculate your current ratio? Check out Bankrate’s credit utilization ratio calculator.
Your average account age won’t be affected
Another reason downgrading can save your credit score is because it shouldn’t affect your average account age, which reflects the length of your credit history and makes up 15 percent of your FICO credit score. If you cancel an older credit card, your average account age decreases and negatively impacts your credit score. When you downgrade, you keep the same account, and that element of your credit report is unchanged.
You won’t need to apply for a new card
If you plan to apply for a new credit card after you cancel your current card, your credit will take another hit due to the hard inquiry that comes with a credit card application. If you downgrade instead of canceling, you bypass the inquiry and get a new card. Plus, you don’t have to go through the application process.
Cons of downgrading your credit card
In some situations, it may make sense to cancel your card instead. Here are some pitfalls of downgrading to watch out for:
Your downgrade process is limited by your issuer and product line
You can’t downgrade a Chase card to an American Express card, for example. You’re bound by what your current issuer offers, and you probably can’t downgrade to any card you’d like. For example, if you have the Capital One Venture X Rewards Credit Card and want to downgrade, you would likely have to do so within the Venture product line. In this case, a card you could ask to downgrade to would be the Capital One Venture Rewards Credit Card.
You could see a potential loss in rewards earned
Downgrading your card might mean you lose any unredeemed points or cash back, so check your rewards balance before doing so. Unredeemed cash back is easy enough to take care of — simply redeem it. Points can be tougher to get rid of since you might not have a flight planned at the time you’re considering downgrading.
First, ask your issuer if your points will disappear once you downgrade — you may be able to hang onto them. If not, your next best option after a travel redemption would be cashing in for a gift card or statement credit, even though that doesn’t always offer the best per-point value.
You won’t typically be eligible for a sign-up bonus
When you downgrade (or upgrade), you aren’t typically eligible for the new card’s sign-up bonus. The best credit card sign-up bonuses are worth hundreds of dollars, which is significant. If you don’t mind the associated credit hits and are set on earning that sign-up bonus, you may be better off canceling your current card and applying for the new card.
How to downgrade your credit card
Before downgrading your card, you have to request a downgrade and have it approved by your credit card issuer. So, immediate approval for a downgrade is not always a guarantee. To optimize your chances of having your downgrade request approved, follow the steps below:
- Know how long you have had the account open. Some issuers don’t approve downgrade requests on accounts that have been open less than a year. That said, you can always present your case. If you’re unable to pay a high annual fee associated with your credit card, now is the time to reach out to your issuer to see if they can work with you.
- Redeem rewards. As mentioned, you will probably lose any unredeemed rewards, so make sure to cash in before you initiate the downgrade.
- Contact your credit card company. The next step is to reach out to your issuer to formally make the request. The process of getting your downgrade approved depends on the issuer, and some may require you to call them while others will let you make the request online.
These issuer-specific guides can provide further information:
Your issuer will tell you which cards you can downgrade to (if any), and you can make your decision from there. If you’re not sure, you don’t have to make a decision on the spot. Feel free to think it over and call back another day.
The bottom line
Lifestyle changes may make a once-useful financial tool a burden, especially if a high annual fee is in the mix. If this applies to you, take comfort in knowing there are options available that don’t have to hurt your credit score. Now is the time to reach out to your credit card issuer to explain your financial situation and ask for assistance, including options to downgrade your card.
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