When Does It Make Sense To Downgrade A Credit Card?

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A couple of weeks ago I wrote a post about how there’s a correct order in which to apply for credit cards. Specifically, Chase has the 5/24 rule, where you won’t be approved for many Chase cards if you’ve opened more than five accounts in the past 24 months. So if you’re new to miles & points it can make sense to first apply for those cards, and then later pick up other cards.

Some of the best cards to start with would be the Chase Sapphire Preferred® CardChase Sapphire Reserve℠ CardInk Business Preferred℠ Credit Card, and Ink Business Cash℠ Credit Card, just to name a few.

Then there are some cards with much lower sign-up bonuses that might be worth applying for directly, or otherwise it might make sense to downgrade to them instead. For example, I love both the Chase Freedom® Card and Chase Freedom Unlimited®, which offer a great return on everyday spend and don’t have an annual fee.

With that in mind, some readers had more general questions about how downgrading credit cards works, so I figured I’d address that in this post.

How does downgrading a credit card work?

The concept is pretty simple. Sometimes a credit card was ideal for you at what point, but is no longer a good fit. If the annual fee on a card is due and you no longer want it, the credit card company typically doesn’t want to lose you as a customer, so may offer to let you product change a card.

This actually goes both ways — you can often upgrade no annual fee cards to premium cards, and you can also downgrade premium cards to no annual fee cards (and anything inbetween).

It’s a win-win, as it lets you maintain a credit card, along with your credit line, without having to apply for a new card.

Do you get the sign-up bonus if you product change a credit card?

You typically don’t get the sign-up bonus on a credit card if you’re getting it through a product change. So by doing a product change you’re forgoing the sign-up bonus on a card. However, credit card companies do often have upgrade offers on cards, so if you wanted to switch from a basic card to a premium card, there is sometimes a bonus. For example, many people with the Hilton Honors™ Card from American Express report getting an upgrade offer if product changing to the Hilton Honors™ Surpass® Card from American Express.

Typically it’s not as good as the bonus would be if you’re applying for a card without a product change (though at the same time there there’s also no credit inquiry this way). Everyone has to decide for themselves which offer makes more sense.

What credit cards can you downgrade to, and when?

This isn’t always so straightforward. In other words, you can’t just product change a card to any other card from the same issuer. Typically it has to be in the same “family” of cards. Furthermore, if you have a personal card you can only product change to another personal card, and if you have a business card you can only product change to another business card. Furthermore, you’re typically only allowed to product change if you’ve had a card open for at least a year.

The only way to know for sure which cards you can product change to is by calling the issuer and asking what’s available for your account. But as a general rule of thumb, expect that if you’ve had a card for at least a year you can downgrade to another card in the same general “family” of cards.

When does it make sense to downgrade a credit card?

If you don’t want a card anymore, I don’t always recommend downgrading. Sometimes it makes more sense to just cancel a card. There’s no reason to have “dead weight” in your wallet.

To me there are two main circumstances under which you should downgrade a card rather than canceling it outright:

  • If you’ve had a card for a really long time it might make sense to downgrade it rather than canceling it, since average age of accounts is an important factor in your credit score, and you can preserve that history by downgrading rather than canceling a card.
  • If there’s a card you can downgrade to that offers you actual perks you’d get value out of, it could make sense to downgrade to it. However, you’re best off doing this when you don’t think it’s worth applying for the card directly, either because you’re not eligible for the card, because you don’t think it’s worth the inquiry, etc.
  • If you’re still fairly new to credit cards and have a limited credit history, it could be worth trying to preserve your available credit, etc., for a while, and therefore might be worth holding onto a no annual fee card.

To give a real life example, last year I downgraded the Chase Sapphire Preferred® Card to the Chase Freedom Unlimited®. I had been approved for the Sapphire Reserve, so figured it wasn’t worth holding onto it and the Preferred. Rather than canceling the Preferred, I downgraded it to the Freedom Unlimited. That’s because:

  • I wouldn’t have been approved for the Freedom Unlimited due to having exceeded the 5/24 limit
  • The Freedom Unlimited is one of my favorite cards to use for everyday spend, as it offers 1.5x points per dollar spent, so having the card got me real value

That downgrade was most definitely a big win for me, even though I didn’t get the sign-up bonus (which isn’t huge to begin with).

Bottom line

If you’re not happy with a card you have and are considering canceling it, always make sure you first figure out the product change options available for you. It’s not always worth doing, though there are circumstances where it’s a great option. If you’ve had a credit card for a long time it could make sense to downgrade it rather than canceling it, so you can maintain the credit history. But beyond that, it can also help you maximize your rewards by product changing to cards that add value to your portfolio, but that you may not otherwise apply for directly.

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Comments

  1. Lucky,

    Would product changing from say the Barclaycard Arrival to the Arrival+ count as a new account in terms of staying under Chase’s 5/24? I’m gardening atm so i can fall below 5/24 but I wanna upgrade a product. I just don’t want it put me further behind on getting under 5/24.

  2. @lucky I have the Prestige card. I downgraded the Sapphire Preferred to the Sapphire Standard which I had never heard of because it seems everyone pushes Freedom Unlimited card as the best no annual fee option with Chase. I transfered the points to Korean Air and Hyatt 25,000 and 50,000 respectively, to avoid the devaluation of the points by downgrading. Now I just have to use the skypass miles and hotel points before they expire or get devalued

  3. Having both the CSP and CSR, I just canceled my CSP and moved my credit line to my CSP, no reason to get the CSP or downgrade it to the CS.

  4. Lucky,
    I currently have the Citi Prestige card primarily for the Admirals Club benefit. With that benefit ending in July, what do you recommend? Due to the continual decrease in value of AA miles I am hesitant to get the Citi AAdvantage Executive Card.

  5. I’m in a similar situation–I have the Citi AA Executive for the lounges (and got the Aviator just for the sign up bonus) but I’m getting annoyed with the lack of redemption opportunity–I have normally given miles tickets as gifts–since (in general) flying to visit me can be expensive.

    Just unsure where to go with it–or even abandon AA altogether, even though they’re the #1 carrier at STT.

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