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How to decide when to dump your rewards card for another

By Randy Petersen

Cashing In
Cashing In, Randy Petersen
Randy Petersen is editor and publisher of Inside Flyer, which is considered the leading publication in the world about frequent traveler programs. At CreditCards.com, he writes Cashing In, a weekly feature in which he answers readers' questions about credit cards rewards programs.

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Question for the CreditCards.com expert

Dear Cashing In,
I've had a decent air miles rewards card for about five years, and got some decent deals out of it. But I see these new deals with bonus rewards points for signing up. How do you know when to dump a rewards card and get a new one? How often should I do it or should I do it at all? -- Rebecca

Answer for the CreditCards.com expert

Dear Rebecca,
You are not alone. There are plenty of travelers, myself included, who see bonuses of 30,000 to 45,000 miles for the same or similar credit card where, just a few years ago, only offered 3,000 to 15,000 bonus miles. Chalk this up to the extreme competitiveness of the credit card industry these days.

So when do you dump a rewards card? There are some people who dump their rewards cards every six months or so, just to stay in the hunt for these sign-up bonuses. I'm not a big fan of promoting that sort of activity as it does carry potential penalties. First, you need to have really good credit if you want to dump a rewards card these days. Plus, with the credit markets changing, it may become very difficult for some to change cards and retain the same credit limits they currently enjoy.

One of the most damaging things rewards credit cardholders do is to apply for a card, get involved in earning and using the rewards, but yet do not monitor their value. My general rule is to review my rewards cards every two years.

Here are some basic guidelines to consider when deciding to dump a rewards card:

1) You find yourself unable or challenged to use the current rewards you have earned. If the types of rewards you are trying to use just don't seem to be available when it is most convenient for you, then perhaps you are in the wrong program and another might better suit your needs.

2) You've changed your lifestyle and the types of rewards you enjoyed in the past are no longer relevant. Here's an example: While everyone used to fawn over earning frequent flier miles to circle the globe, any number of travelers have been-there-and-done-that and are now looking for experiential rewards that are not focused on travel. Yes, there are weary travelers out there who would be enticed to use their miles to stay home.

3) Rule and term changes by the issuing bank no longer make the rewards card the bonus financial instrument it once was. Examples include: If the bank increased the foreign transaction fees on international purchases, altered your interest rate by more than 1.5 percent or lowered your credit limit. These are all factors that may make changing a rewards card a smart financial decision, and not at all tied into the actual rewards themselves.

4) There just happens to be a better card in the market now that just wasn't there when you first applied for your current rewards card. Let's face it, times change and offers change. These are all factors that bring new products to the market. It does pay to be aware of what's new out there. It's unfortunate, but I know far too many people who, when asked why they have the current rewards card they have, can only say, "because it's what I've always had."

If any of these situations apply to you, then it may be time to seek out and get a new rewards card. But be careful and make sure you inspect all the aspects (interest rate, penalty rates, etc.) of the new card before you sign up. There's nothing worse than to switch to another card just for the bonus miles and points, only to find out later that you regret having made the change.

Plus, you need to consider the credit score impact of switching credit cards. Whenever you apply for credit cards of any type, your credit score will take a hit. Does this mean you shouldn't look at new rewards cards? Certainly not. Applying for one or two new cards will affect your credit score, but depending on your overall credit health, only a little. And with proper use of the new credit, you should be able to regain that lost score over a short period of time. The effect will be noticeable, but not damaging. What could cause more credit score damage, however, is if you choose to cancel a rewards card that you've had a long time. Fifteen percent of your credit score depends on the length of your credit history. My advice would be to keep your oldest credit card and not cancel it, whether you use it or not.

Finally, on the subject of sign-up rewards bonuses. While some may be great, I think it is better to concentrate on building rewards and protecting your credit score rather than play "chase the bonus." Don't get me wrong -- I'm all about big bonuses, but far too often I see cardholders with miles in their eyes and have absolutely no idea about the benefits and use of the credit card. Be smart. I'll take the right card over a one-time bonus any day, but because of the competition, I'm finding I can get both at the same time.

See related: Understanding how credit scores work, Where some of the best rewards cards can be found, How to find the best airline rewards bonus miles deals, Foreign transaction fees going up

The Wall Street Journal refers to Randy as "... the most influential frequent flyer in America," while The New York Times tagged him "the world's leading expert on airline frequent flier programs." Randy is editor and publisher of Inside Flyer magazine -- considered the leading publication in the world about frequent traveler programs. He is a regular speaker at business travel seminars and conferences around the world; and is often called upon by the industry itself for his comments and suggestions about the future of frequent traveler programs.

Send your question to Randy.

Published: June 30, 2009



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Credit Card Rate Report

Updated: 10-24-2014

National Average 15.07%
Low Interest 10.37%
Business 12.80%
Balance Transfer 12.82%
Student 13.14%
Cash Back 14.98%
Reward 15.05%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

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