If you are a credit card user and are suffused with the offers of upgrading the card or of extra benefits, then you are not alone. There is no denying the fact that most of these offers are worth giving a pass, a few — however — are worth exploring.
Broadly, there are two types of credit card offers – one relating to the card upgrade while the second around the limit enhancement.
The conventional wisdom suggests that any reward or benefit is welcome so long as it doesn’t carry hidden charges in it.
Conversely, if any of these benefits come at a price — hidden or explicit — then your evaluation would naturally be different.
For instance, when extra benefits accompany a higher annual fees of credit card, then the cost would outpace the benefits, and your final evaluation must factor this in.
Credit card upgrade or limit enhancement is usually offered when you have a good record of repayment of bill and card usage. After you accept the offer, you may be entitled to receive the cashbacks, rewards and other offers.
And if you decide to turn the offer down, you stand to lose out on these benefits.
Moreover, when you opt for a higher credit limit, your credit score would stand to improve. It happens because the credit utilisation ratio (amount of credit used out of total limit) declines with higher credit limit, thus improving your score.
“Increasing your credit limit can lower your credit utilisation ratio (the amount of credit you’re using compared to your total available credit), which is a key factor in calculating your credit score,” says Moulik Patel, chief business officer, fixed income, Yubi.
Key points to remember
There are a number of factors which one must consider before opting for card upgrade or limit enhancement. For instance, one of the disadvantages that accompanies the limit enhancement is that you could become prone to overspending.
Suppose you have a credit card with a maximum limit of ₹5 lakh, out of which you spend up to ₹4 lakh. Next month, the limit is raised to ₹8 lakh. Now you would perhaps want to spend between ₹6-7 lakh, and not ₹4 lakh.
Moulik Patel, says, “When deciding between a credit card upgrade and increasing your credit limit, crucial factors come into play. Your credit score holds immense weight in both scenarios. A strong score minimises impact; otherwise, consider improving it first.”
He also suggests considering your spending habits before jumping the gun. “Ensure rewards align with your usage patterns, and carefully assess the potential impact on your credit history,” he adds.
Dhruv Verma, Founder of Thriwe, recommends users to choose reward cards if they want bank points for shopping or miles for their next trip.
“Currently, most banks are expanding credit limits more frequently than ever, indicating that the purchasing power is increasing, and hence more benefits and reward points are to be added. As a curator of these benefits for most leading banks in India, we feel that the main criteria while selecting a credit card should be benefits, cashback and points usage with no hidden charges. Reward cards are great for people who want to bank points for shopping or miles for their next trip. Upgrading the card instead of a new one should always be preferred because of the prior relationship with the bank,” says Verma.