Why You Should Switch Credit Cards, and the Psychology Behind Keeping Your Old One
Did you know that if you switch credit cards, you could receive better rates and rewards? Regardless of this fact, 25 million people have been loyal to their same credit card for ten years or more, and another 20 million have never switched credit cards.
While this might be a good thing in terms of establishing a long credit history with one credit card, you may be missing out on specific benefits — like cash back which can be used to pay off debt — that can assist you on your journey toward financial wellness.
Top Reasons for Not Making the Credit Card Switch
There are many reasons why people choose not to switch credit cards, despite their rewards needs changing over the years. For example, some people love certain brands that co-brand with specific credit card companies. Current retail credit cards allow cardholders to get rewarded each time they shop with that brand, but not necessarily for all of their other purchases, unlike with other reward credit card programs, which may reward you for all purchases regardless of where you shop.
There are also time and energy costs involved when you switch credit cards — such as having to shop around for a new one, applying for a new card, setting up automatic payments to the new card, and re-associating your bank accounts — that keep some people from completing a switch.
Some decide to stay put with their current card out of fear that it will negatively impact their credit score. While this can happen when you close a credit card account, it isn't guaranteed. For example, if your card was just recently opened, then closing it may not impact your score because there's not enough history associated with it; length of credit history is one criterion used in calculating your credit score. Or, if you move your credit line from the card you close to a card you're keeping (something you can request by calling customer service on the card(s) you decide to keep), then your score may not be affected. If you're concerned, consider switching to another card for your primary-use but keeping the old account open.
Top Reasons for Why You Should Shop Around
If you've been hanging onto your credit card for a long time, then chances are good that you could find better terms and perks with a little research.
Take a look at your current card and see if it falls into any of the following categories:
- High fees — such as a high annual fee, a high balance transfer fee, fees for convenience checks, or high foreign transaction fees
- High-interest rates on a card you're not paying in full each month; a high-interest rate can be justified if it has lucrative rewards and you're able to pay it off each month before interest is charged
- A rewards program that is limited by how you can use the reward points, such as only allowing you to cash in for gift cards to certain stores or places you wouldn't normally shop
- A rewards program that is limited by how much you can earn; this may include only paying points for a few categories, at certain retailers, or cards with a rewards program that only let you earn up to a certain amount of points
- Cash back cards with tiers that don't make sense for how you spend your money; for example, a card that pays 4 percent in one category of spending, but only 1 percent in others may not be as good as a card that gives you a flat percentage payout for all categories
When you shop around, you'll likely find cards with smaller annual fees, more lucrative reward points than what you're currently earning, the chance to use reward points in ways that benefit you more, lower interest rates, and so much more. There are also some impressive sign-on bonuses you can receive to sweeten the deal.
How to Kick-start Your New Credit Card Search
To kick-start your search, you'll want to figure out what kind of credit card is right for you. Think about how you're going to use the card, and what your normal spending patterns look like. For example, a card with a potentially higher interest rate might be right for you if the rewards can justify it and you can pay off the balance each month before the interest rate kicks in.
Think about where you want to be able to redeem your rewards or if you'd prefer cash back, and whether or not the redemption rules align with your overall money goals. This may include travel rewards if you're looking to book trips over the next few years, versus getting cash back credits on your statement to align with your debt repayment goal.
Once you figure out what type of card will actually add to your financial wellness by maximizing your rewards and helping with your money goals, you'll want to research sign-up bonuses. These can include balance transfer offers that allow you to transfer a credit card balance for a promotional low- or 0 percent interest rate over a set number of months, a cash bonus once you meet certain spending thresholds within the first few months of card ownership and more.
If you haven't shopped around for a new credit card in years, it's probably in your best interest to at least take a look at what's changed and what's new. Check with your current financial institution to see if they have had any new credit cards come out recently that might fit your current needs better. You might find a card that aligns with your overall money goals much more than your current card can. Be sure to speak with a banker if you have any questions or concerns about switching credit cards.