How to know when it's time to upgrade your starter credit card

When you get your first credit card, you're probably not getting a card with the most lucrative welcome bonus or the highest rewards categories. Your card might be a secured credit card, which requires you to put down a deposit that acts like collateral, or a card that's just for college students.

While these cards are a great way to start building your credit history, you will likely reach a point where you want to upgrade. 

People should move on from their first card when they've gotten in the habit of paying off their monthly balances on time and in full, says Roger Ma, a certified financial planner at lifelaidout® and author of "Work Your Money, Not Your Life.

Once you know how to be a responsible credit card user, it could be time to get a new card, especially if you have a better credit score than you did when you opened your first card. Here are a few things to consider before you take the plunge.

If you have a secured card, you may have the ability to easily upgrade after a few months of responsible usage. The Discover it® Secured Credit Card, for example, offers a clear path to getting an upgrade. Starting at seven months from account opening, Discover will automatically review your credit card account to see if you can transition to an unsecured line of credit and return your deposit.

While the Discover it Secured Credit Card does offer cardholders 2% cash back at gas stations and restaurants, on up to $1,000 each quarter, and 1% on all other eligible purchases, it might not be a great option for you if you want more rewards or need a higher credit limit.

You shouldn't close your first credit card because the length of your credit history makes up 15% of your FICO credit score, and it's affected by three factors: the average age of your accounts, the age of your oldest account and how long it's been since you opened an account. 

If you close your account, you'll negatively impact the average age of your accounts and the age of your oldest account and undo some of the positive work you did opening a card in the first place.

Ma recommends that if you plan on keeping your card open, you should periodically monitor it to make sure there is no unauthorized spending. You'll also want to make sure you use it from time to time, otherwise the issuer could close it due to inactivity.

When you're choosing a new card to add to your wallet, you should consider the welcome bonus, the annual fee, the foreign transaction fees, your credit score and whether your spending habits align with the card's rewards categories. 

"If your spending is spread evenly across categories, it may make sense to look for a rewards card that gives you a high cash-back percentage for all spending," says Ma. 

For a card with a flat cash-rewards rate, you could choose the Wells Fargo Active Cash® Card which offers 2% cash rewards on all eligible purchases and no annual fee. (Read our full review of the Wells Fargo Active Cash Card.)

Another popular flat-rate cash-back card is the Chase Freedom Unlimited®, which offers an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) - worth up to $300 cash back!. New cardholders earn 6.5% cash back on travel purchased through Chase Travel, 4.5% cash back on drugstore purchases and dining at restaurants (including takeout and eligible delivery service), and 3% on all other purchases (on up to $20,000 spent in the first year). After your first year or $20,000 spent, enjoy 5% cash back on travel purchased through Chase Travel, 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and unlimited 1.5% cash back on all other purchases.

Lastly, if your spending is more concentrated in a few areas, you might want to opt for a card with either rotating categories or higher rewards rates in those categories. 

The Chase Freedom Flex® gives 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate, then 1%. (See the full 5% cash-back calendar here), 5% cash back on travel booked through the Chase Ultimate Rewards®, 3% cash back on dining at restaurants (including takeout and eligible delivery services) and at drug stores, and 1% cash back on all other purchases.

If you're a foodie who attends concerts or events regularly, you could opt for the Capital One SavorOne Cash Rewards Credit Card (See rates and fees). You'll get 3% cash back on dining and entertainment, 3% on eligible streaming services, 3% at grocery stores (excluding superstores like Walmart® and Target®) and 1% on all other purchases.

Moving on from your first credit card can open up a lot of opportunities for cardholders: You'll likely be eligible for a card with a more generous welcome bonus and better rewards if you've been diligent with making your card payments on time and in full with your starter card.

For rates and fees for the Discover it® Secured Credit Card, click here