Here's Why I Never Upgrade My Credit Card -- and You Probably Shouldn't, Either

With many credit cards, you have the option of upgrading if you want more benefits and don't mind paying a higher annual fee. The card issuer may even send you upgrade offers from time to time. For example, if you have the Chase Sapphire Preferred® Card, you might eventually want more travel perks. You could call Chase and ask about upgrading to the Chase Sapphire Reserve®.

Upgrading makes sense in theory, and it's the easiest option. It's usually not a good idea, though, because when you upgrade your credit card, it can actually end up costing you money.

The problem with upgrading your credit card

Rewards credit cards often have welcome offers for new cardholders. If you open the account and meet the terms, which is usually a spending requirement, then you earn bonus rewards. For example, a card may offer $300 in bonus cash back when you spend $3,000 in the first three months. Or a card may offer 60,0000 bonus points when you spend $6,000 in the first six months.

When you upgrade your credit card, you're normally ineligible for the new card's welcome offer. You miss out on those bonus rewards by upgrading instead of applying for the card. That's a big loss, because welcome offers are one of the most valuable perks that credit cards have.

Now, there are a couple of exceptions when it could make sense to upgrade:

• The new card doesn't have a welcome offer. In this case, you won't be missing out on anything. This isn't likely if you're upgrading to a card with an annual fee. Most cards that charge an annual fee have welcome offers.
• The card issuer is offering a bonus for upgrading. Card issuers will sometimes do this to encourage you to upgrade. Make sure to check how the upgrade bonus compares to the card's welcome offer to see if it's a good deal. Often, the welcome offer is still a lot better than the upgrade offer.
• You're otherwise ineligible for the card or the welcome offer. If you can't get approved for the card you want, then upgrading may be the only way to get it. Or, you may be eligible for the card, but not the welcome offer. American Express is known for doing this with some cardmembers. They receive a message before they apply for a card letting them know that they won't be eligible to earn the welcome offer.

It's usually better to apply for a new card instead of upgrading

Welcome offers are why I've never upgraded a credit card -- and I've had over 20 of them. When I want a new credit card, I always apply for it so I'm eligible to earn the welcome offer.

The downside is that you'll end up with more credit cards. You may not want that, especially if the card you were planning to upgrade has an annual fee. If you upgrade it, you're only paying one (larger) annual fee for your new card. If you keep it and apply for the new card, you're paying two annual fees.

There are some easy ways to avoid this. Here's what you can do with your old card instead of upgrading it:

• If it has an annual fee, downgrade it. Call the card issuer and ask for a product change to a card with no annual fee. You still keep the account open, and you won't need to pay an annual fee anymore.
• If you don't want the card, close it. Call the card issuer and explain that you want to cancel your credit card. This is a good option if you don't want to end up with too many credit cards, or if the option to downgrade isn't available.

Downgrading is generally considered the better option. You'll still have the card and its credit line, and you'll continue building its account history. But if you'd rather close it, that's fine, too.

Considering how valuable welcome offers can be, you don't want to miss out. If you've been thinking about upgrading your credit card, see if you could earn a bonus by applying for it instead.