| March 23, 2016

Are You Too Loyal to Your Creditors?

Millions of Americans never change credit cards, and could be losing out.

The right mix of credit cards is key to success

Product loyalty can be a good thing. You find a gadget that works and you use it to make your life easier for as long as it lasts. Then in most cases you go out and buy the same brand of that gadget in the hopes it’s just as good as the last time. This ensures you get products that work instead of being held back by a product that doesn’t deliver.

However, credit cards aren’t like other products. Unless the issuer goes out of business, you can usually use a credit card indefinitely. As long as you pay, the account never breaks or becomes so obsolete that you can’t use it anymore. Still, does that mean you should use the same credit card forever and ever amen if it’s been a good card in the past?

Not by a long shot.

Over the years, the credit card industry itself evolves and grows. You get new features that make it more beneficial to use credit, rewards like cash back and airline miles. You also get new protections like EMV chips and cards that can actually be read by card readers if you travel overseas. But often these latest and greatest industry innovations aren’t retroactively added to credit card accounts that already exist.

As a result, if you’re one of the 20 million people in the U.S. that have never changed your credit card, according to a report from CreditCards.com, then you could be missing out by staying loyal to a product that worked well for you in the past. The report shows another 25 million people haven’t changed their cards in 10 years. Chips and overseas transaction enablement both came out in the past decade.

““Americans are creatures of habit and need a big reason to change something as fundamental as credit cards,” said Matt Schulz, senior industry analyst at CreditCards.com. “If you are somebody that hasn’t changed in a while and haven’t collected rewards, you’re losing out on that opportunity by sticking with the same card that you have had for years.”

Make new credit friends, but cherish the old

If you haven’t shopped around for credit cards in a while (or ever) then you should take some time to comparison shop online to see what kinds of cards are available since you got your last one. Look at features, compare cards side-by-side using websites like CreditCards.com and see what you’ve be missing.

Additionally, if you have a better credit score now than when you applied for that first credit card, even your interest rate may be better on a new card. Otherwise, you should at least call your current credit card issuer and ask for a rate reduction. Particularly if you’ve been a loyal cardholder and active user with an account in good standing for a few decades then you should be able to negotiate for a better interest rate.

And it may be in your best interest to negotiate with that creditor for the lowest rate they’re willing to offer. You’re much more likely to get a lower rate with an issuer you’ve been with for decades than with one you just applied for – even though you have the same credit score in both cases. Also – and something that’s extremely important to understand – you don’t want to close that old account or you could actually decrease your credit score!

Length of credit history is one of five factors used to determine your credit score. This is measured by the age of your oldest account. If you close that account for any reason, then it may impact your credit in some cases and you could see at least a slight decrease in your score.

What’s more, if you’re getting a new credit card to earn rewards like cash back, then the interest rate is likely to be higher on that card anyway. Rewards credit cards typically have higher interest rates than traditional credit cards with no rewards programs included. Having two cards that serve two different purposes allows you to be more strategic about using credit.

One good strategy would be to use the rewards credit cards for smaller transactions. Let’s say you can earn cash back on gas and groceries. The rewards credit card would only be used for those transactions so you can easily afford to pay off the balance in-full every month. Then your old credit card with that low interest rate you negotiated with the creditor can be used for larger transactions that can’t be paid off in the first billing cycle.

By doing this, you minimize interest charges as much as possible. On the rewards credit card if you start the month with a zero balance and pay off any transactions you make before the end of the grace period, interest charges won’t be applied. Then, at most, the only balance you carry over is on a low-interest credit card so it will cost less in monthly interest charges as you work  to pay off the debt.

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