You could lose the rewards you’ve earned if you cancel a credit card without a plan, and a smarter option is to downgrade the card instead. When you switch to a no-annual-fee card within the same card family, you can usually avoid forfeiting your points or miles while preserving your account history and credit score. See how to downgrade your credit card without risking rewards.
How Credit Card Downgrades Work
Credit card downgrades, or product changes, allow you to switch to a different credit card with the same issuer without closing your account. It’s common to downgrade from a credit card with an annual fee to a card with no annual fee. You might want to downgrade a credit card if you’re not getting enough value from it or you want to simplify your credit card portfolio while maintaining your credit history.
Credit card issuers typically allow product changes within the same card family once you’ve had your original card for at least a year. For example, you might try the Capital One Venture Rewards Credit Card with a $95 annual fee See Rates & Fees for a year, then downgrade to a Capital One VentureOne Rewards Credit Card with no annual fee. See Rates & Fees
Don’t expect drastic changes, like moving from a Sapphire to a United card. Chase cardholders can typically move between cards that earn Ultimate Rewards points, and American Express cardholders can switch between Membership Rewards-earning cards or cash back cards.
[Read: Best Credit Cards.]
What Happens to Your Rewards
Downgrading a credit card typically changes how you earn rewards, though it’s rare you’ll lose them in a product change. If you’re downgrading from a premium credit card to a no-annual-fee card, you’ll likely keep your rewards but earn at a lower rate.
For example, if you downgrade a Capital One Venture Rewards Credit Card to a Capital One VentureOne Rewards Credit Card, you’ll no longer earn 2 miles per dollar on all purchases and earn 1.25 miles per dollar instead.
“If the downgraded card doesn’t earn the same structure of rewards, they may be lost after the downgrade,” says Kim Chambers, credit card product manager at Georgia’s Own Credit Union.
You may have the option to change to a different rewards currency, such as converting Capital One Quicksilver cash back rewards to Venture miles.
What exactly happens to your credit card rewards depends on your card and the type of rewards you earn.
— Rewards points, such as Chase Ultimate Rewards or American Express Membership Rewards, won’t change if you downgrade to a card within the same rewards system. For example, you’d still have your Ultimate Rewards points if you downgrade from the Chase Sapphire Preferred® Card to the Chase Freedom Unlimited®. However, even if your points or miles remain in your account, a downgrade could limit how you use them — or reduce their value. You’d lose the Chase Sapphire Preferred® Card’s ability to transfer points to travel partners.
— Cash back is generally safe in a credit card downgrade as long as you downgrade to another cash back card. You could downgrade the Blue Cash Preferred® Card from American Express to the Blue Cash Everyday® Card from American Express and still earn and redeem cash back with no annual fee. See Rates & Fees
— Co-branded points or miles earned with an airline or hotel brand are typically retained in a separate loyalty account. If you downgrade the Hilton Honors American Express Surpass® Card to the Hilton Honors American Express Card, your points will stay in your Hilton Honors account — but you’ll earn points at a lower rate. Most airline and hotel loyalty programs require activity to keep your rewards active. For example, Hilton Honors points expire after 24 consecutive months of inactivity. You could keep your points active by using a downgraded Hilton Honors card.
Credit card downgrades usually don’t trigger a sign-up bonus like opening a new account or accepting an upgrade offer for a more premium credit card. Expect changes to cardholder benefits, too.
“While points most likely won’t be forfeited in a downgrade, you may lose access to specific rewards and benefits like travel protection or insurance, and the value of points and how they can be used could be limited,” says Len Covello, chief technology officer of Engage People, which works with rewards and loyalty programs.
[Read: Best Rewards Credit Cards.]
Why You Should Downgrade, Not Cancel
Downgrading instead of canceling can save your credit card rewards, but there are other practical benefits to keeping your account but changing products.
Your card number, account age and credit limit typically stay the same with a credit card downgrade. That’s great for maintaining any automatic payments you’ve set up. A credit card downgrade will maintain your credit history, as well. Canceling a card can shorten your credit history and affect your credit utilization ratio by eliminating the credit line available with the card. With a downgrade, your credit age and payment history will continue with the new product, and credit card downgrades don’t require a new credit inquiry.
“A closed account will no longer contribute to the user’s credit history at a certain point, ultimately impacting the score,” says Covello. “For credit card users with good credit history, closing an account and the subsequent loss of information and amount of credit can negatively impact a credit score.”
[Read: Best Cash Back Credit Cards.]
Steps to Downgrade a Credit Card and Save Your Rewards
Take a few smart steps to avoid losing rewards before you contact your credit card issuer for a product change.
1. Use outstanding benefits. Review your benefits to maximize your premium card’s benefits before you downgrade. For example, you should use travel credits or anything you get a statement credit for, like TSA PreCheck or Global Entry.
2. Research downgrade options. Look at the issuer’s lineup of cards to consider downgrade options. Look closely at cards in the same family as your existing card, such as Venture or Sapphire cards.
3. Use rewards if needed. Redeem or transfer any points you might lose or that will be more limited after downgrading. For example, if you’re downgrading your Chase Sapphire Preferred® Card to the Chase Freedom Unlimited®, you might want to transfer points to Chase travel partners first.
4. Call the card issuer. Contact the issuer to discuss your downgrade options. Ask about what happens to your rewards and which downgrade options allow you to keep using your rewards. If you recently paid an annual fee, ask whether you qualify for a refund.
5. Confirm the change. Choose a new card and confirm the details with the issuer. You shouldn’t need to update any automatic payments unless your card number changes.
If you do nothing else, at least confirm you’re not leaving any rewards behind. “Cardholders can avoid losing rewards by redeeming prior to the downgrade or requesting to remain in a similar program,” Chambers says. “To make sure there are no surprises, contact the issuer to ask if the earned points will carry over and if any expiration dates are impacted.”
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How to Downgrade a Credit Card Without Losing Rewards originally appeared on usnews.com
