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Downgrading a credit card may sound like a setback, but it actually can really reward you if your spending habits have changed and you no longer see value in the card you're currently using.
For example, if you signed up for the Chase Sapphire Preferred® Card or Chase Sapphire Reserve® last year to earn either card's generous sign-up bonus offer but are now finding that the $95 or $550 annual fees, respectively, outweigh any of the travel rewards you use, you can ask to be downgraded to one of Chase's no-annual-fee credit cards.
But what perks would you miss out on by downgrading instead of opening that credit card as a new account?
When you downgrade a premium card to opt for one that has less fancy bells and whistles, you could earn more on the type of spending you are doing versus paying for a card you no longer earn rewards with.
For example, if you're not traveling as much right now because of the coronavirus pandemic but you're still paying an annual fee for a luxury travel rewards credit card, you should consider downgrading (especially if you don't see yourself traveling in the near future). You might be better off with a credit card that rewards you in more relevant categories for what you spend money on today.
In the scenario we used above, you could downgrade your Chase Sapphire travel credit card (which earn either 2X or 3X on travel and dining) to the Chase Freedom® or Chase Freedom Unlimited® — both of which offer no annual fee and simple-to-earn rewards.
By downgrading to the Chase Freedom, you would earn 5% cash back on up to $1,500 in rotating bonus categories (upon activation), plus 1% back on all other purchases. If you instead downgraded to the Chase Freedom Unlimited, you would earn 5% cash back on travel purchased through Chase, 3% on dining and at drugstores and 1.5% on all other purchases.
Because most issuers consider a credit card downgrade (or upgrade) a "product change" versus an opening of a new account, you likely won't qualify for any welcome offers that you normally would if you had just applied for that same card the usual way. These offers are generally created to entice new applicants, rather than current cardholders.
In our example, downgrading to the the Chase Freedom or Chase Freedom Unlimited would mean that you miss out on earning the $200 cash back after spending $500 on purchases within the first three months.
You would also miss out on the introductory 0% APR offers that both cards have: No interest on new purchases for the first 15 months from account opening (after, 14.99% to 23.74% variable APR). Once you are downgraded to the Chase Freedom or Chase Freedom Unlimited, your interest rate would immediately be this higher variable rate, as opposed to a 0% APR.
If you are someone who signed up for a credit card, like either of the Chase Sapphire cards, to earn the welcome bonus and now no longer want it, downgrading is still better than completely canceling the account. And it will earn you new cash-back rewards. Otherwise, canceling your card because your incentive ended can temporarily ding your credit score.
Although most credit card issuers may likely state that cardholders aren't eligible for new welcome offers or 0% APR promotional periods when they downgrade their card, it's worth it to call and ask.
You may be able to negotiate a revised offer or promotional period, especially if you have a good history with your card issuer. Otherwise, if you want a zero-interest card, you're probably going to have to open a new one.
Information about the Chase Freedom® has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
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