Upgrading to a Better Credit Card

When you’re starting out with brand new credit or you’re rebuilding after a bout with bad credit, odds are your current credit cards aren’t the best. People with new credit and bad credit typically have the least attractive credit card offerings, low credit limits, annual fees, and high APRs. You have to start somewhere, right?

Once you’ve been using a “starter” or “rebuilder” credit card responsibly for several months, you may be ready to upgrade to a better credit card, one with better terms and more generous credit limit.

It can take several months before you qualify for a better credit card, so don’t rush. Whatever credit card you have, use it wisely.

Pay attention to the credit card offers you receive in the mail. These are often prescreened based on your credit report information. So, as your credit improves, it’s likely that the credit cards you’re offered will also improve. Keep in mind that pre-approved offers don’t guaranteed approval. You can still be denied for a pre-approved offer. However, these offers do loosely indicate the type of credit cards you may qualify for.

Don’t respond to pre-approved offers right away. Instead, save them so you can better compare credit cards. Look at the card terms, e.g. interest rate and annual fee. Keep the ones with the better terms and toss the others.

Improve your odds of getting approved by using credit card comparison sites or credit card reviews to gauge the type of credit history you need to qualify for the credit card. No sense in applying for a credit card that requires excellent credit if you don’t have excellent credit.

Before you apply for a brand new credit card, contact your current credit card issuer to see if you qualify for one of their better credit cards. Your positive account history may improve your chance at getting approved. And, your account histories may be merged keeping you from having too many open accounts on your credit report.

If you apply for a better credit card and you get denied, don’t immediately apply for another. You’ll get a letter in the mail in a few days explaining why you were turned down. A new or poor credit history could still be holding you back. Just keep charging wisely and pay your account on time each month. Wait about six months and then try again.

But, if you are approved, congratulations are in order. Being approved for a better credit card shows that your credit history is improving. Keep your celebration to a minimum, though. The last thing you should do is go out and max out your new credit card. Instead, keep up the same habits as you’ve been using the past several months, keeping a low balance and making timely payments.

As your credit improves, you may qualify for credit cards with rewards. Beware the debt trap these credit cards often create. You might be tempted to overcharge just to receive more rewards. Avoid the temptation. There’s no sense in getting rewards if you’re going to ruin your credit. It’s not worth it.

Your new credit card may have a higher credit limit. Creditors trusting you with more credit is another thing to be happy about. Just remember to keep your balance below 30% (ideally 10%) of the credit limit. You’ll help your credit score and lower the risk of creating more debt than you can handle.

Be excited that your credit is improving and you can qualify for better credit cards. But, don’t get so happy that you open up several new accounts at once. Instead, apply for credit sparingly, one or two credit cards is enough. Use your upgraded credit card for awhile and within several months you might qualify for something even better.