How to Downgrade Your Credit Card and Avoid Lowering Your Credit Score


This story is part of CNBC’s Make It’s One-Minute Money Hacks series, which provides simple, straightforward tips and tricks to help you understand your finances and take control of your money.

If your credit card’s annual fee is starting to seem pointless, don’t close the card: consider downgrading it instead.

Downgrading a credit card means switching to another card from the same issuer that has lower or no fees, usually in exchange for fewer points and rewards.

Closing a card can hurt your credit score because it lowers your credit limit, which in turn increases your credit utilization rate. Your utilization rate is one of the main factors used to determine your credit score: it indicates the percentage of your credit limit that you are using and is used by lenders to measure your risk.

If you have $5,000 of available credit and normally spend $1,000 on your card each month, that’s a 20% credit utilization rate. Closing one of your cards and reducing that available credit to $3,000 would increase your utilization rate to 33% without changing your spending.

By downgrading a card instead of closing it, you can keep your overall line of credit intact while avoiding annual fees.

Downgrading is also preferable to closing a card because it means your account is still active. You can continue to build your credit history, which can also help boost your credit score.

Downgrading a card is usually an easy process. Simply call your card issuer’s customer service before your card’s annual fee renewal and tell the representative you want to downgrade. They may try to offer you a points bonus for keeping your existing card, but will downgrade if you ask.

Once your card is downgraded, check with your issuer to see if the card will be closed if you stop using it for an extended period of inactivity. If so, consider spending a small recurring expense on it — like a Netflix subscription — to keep the line of credit open.

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