Switching Credit Cards

Why might I want to switch credit cards?

You might decide to switch your credit card for various reasons. Some of the main motives people have for thinking about switching credit cards include:

  • To take advantage of rewards from spending, such as cashback or Airpoints.
  • To shift existing debt from one card to another to benefit from a better rate of interest.
  • To build up a more positive long-term credit rating.

However, there are also a few things to keep in mind:

  • Balance transfer fee: You may be charged for moving your outstanding debt from one credit card to another. Check the terms and conditions of your new card to see what fees you might incur.
  • Transfer limits: You can only transfer a balance which is within the credit limit of the new card. For example, you couldn’t transfer $2,000 of debt from an old card to a new card with a limit of $1,500.

Preparing to switch credit cards

Work out what you want

You want a new card which fits your specific needs. Decide why you need a new card and what this card has to offer. Check out the rates and rewards of other cards your current provider offers, as well as cards offered by major banks and credit card companies. Use our comparison functionality to compare the possible new card with your current one.

Shop around and compare

Compare credit cards from a wide range of providers. The interest rates you’re offered, as well as any rewards or other benefits, could vary widely so it’s useful to have a full comparison. Be aware, any special introductory rates will expire after a certain period so be sure to factor this in when you work out your budget.

Be mindful of interest rates

A key factor in choosing the card which works for you will probably be the annual percentage rate offered. Annual percentage rate (APR) is the amount your borrowing will cost you each year, including interest and any charges. This will be a factor if you think you’re likely to keep the card after any introductory rate has expired.

Stages of Switching Your Credit Card

Try to improve your credit rating before you apply

This can help you maximise your chances of getting a good deal.

Make your application

You can usually apply for a credit card online. Some providers will tell you whether you’ve been accepted within minutes. Alternatively, you may be able to apply in person at one of the lender’s branches.

Call your provider to switch if you’re staying with the same company

Switching to another card offered by your creditor is usually a simple process but will require filing a new application. A customer service agent will explain your options and help you make the switch. Let them know you currently hold a card with them but you’d prefer to carry a different card which offers different rewards or a better interest rate. Keep in mind you’ll have a better shot at negotiating if you have good credit and have been consistently paying your monthly bill on time.

Note: Even if it’s with the same company, switching cards will temporarily decrease your credit rating. Your rating can be restored quickly by ensuring you follow good repayment habits.

Open the new account before cancelling your old card

When you find an offer which fits your needs, fill out and submit the application form but wait until you’re accepted before cancelling your current card. If your card has a high credit limit and you close it when you submit your application, cancelling your current card will leave you with less available credit. If you have debt, your credit rating will be affected. That could cause the creditor to reject your application, leaving you with no lines of credit and a lower credit rating.

Activate your new card

Your new card should arrive in the post with instructions about how to activate it. It might require a trip to your bank or to an ATM. Once you’re in possession of your new card, follow the instructions and the set-up procedure should be straight forward.

Contact your new provider to make a balance transfer

Request the balance transfer from your old card. This can usually be done online via the provider’s website or app or through their customer helpline. Your old provider will usually contact the new provider on your behalf, to move the balance over from your old card.

Set up any direct debits and automatic payments on your new card

Remember to double-check which automatic payments and direct debits were scheduled to be paid from your old card and set up those payments on your new card. Check the due dates of the payments so you don’t end up paying twice.

Figure out what happens to any rewards you’ve earned

If you’ve been collecting Airpoints or other rewards, ask your creditor what happens to them if you cancel your card. Sometimes, rewards can be transferred or used, within a given period of time, after cancellation. Airpoints, FlyBuys, Cashback and other rewards are legitimate currency so make sure you aren’t throwing away money by cancelling the card.

The Dos and Do Nots of switching credit cards

  • Do consider other types of credit. It may be that a personal loan or overdraft would suit you better than a new credit card.
  • Do be aware that every credit application you make will temporarily lower your credit rating.
  • Do try to pay off the card before the promotional period ends and meet all minimum payments on time and in full. Otherwise, you may have to pay standard interest rates.
  • Do the maths. The point of changing credit cards is to improve your financial situation so work out the pros and cons of switching, versus staying where you are.
  • Do not change your credit card too often. It could be costly if there are fees to pay when you switch. Also, changing your accounts too often doesn’t look good on your credit report. Lenders usually prefer to see well-managed accounts, as this indicates you’re a reliable borrower.
  • Do not make too many applications in a short space of time. This could lower your credit rating, meaning you’ll be less likely to get approved.
  • Do not forget to make sure your old credit cards are cancelled, to keep yourself safe from theft and identity fraud.