Here are the telltale signs it’s an ideal time to carry another card.
According to the credit bureau Experian, the average American carried a credit card balance of $6,375 in 2017, a nearly 3 percent uptick from 2016. How does that impact your decision to apply for another credit card? Maybe you never carry revolving debt and have sound reasons for getting another piece of plastic. But if you’re squeamish about carrying a lofty balance across multiple cards and you have concerns about how applying for another one could impact your finances, consider these factors before submitting your application.
Ask yourself why you want another card and evaluate the potential perks and rewards.
If you’re looking to get rewards points for everyday expenses, such as gas and groceries, to make the most of your credit card, that’s an ideal reason to apply. If you’re starting a business, and you’re applying for a business credit card so you can keep your finances and expenses in order, that’s also smart, says Ryan Boggs, an investment advisor representative at FourStar Wealth Advisors in Chicago. But if you’re simply looking to increase your spending, you may want to rethink your decision. “Don’t get another card if it is just to run up more debt or make frivolous purchases, because all you will be doing is digging yourself in a deeper hole,” he says.
Consider your spending habits.
If you’re in a deep debt hole, you should ask yourself a few questions about your own spending patterns, says Jonathan Teixeira, co-founder of WalletWin.com, an online membership site (available for $25 per month) and podcast that offers financial education and coaching and is designed to help its members learn how to get out of debt and build wealth. “What’s your personal track record with credit cards? If you are applying for this card because your current cards are maxed out, chances may be good that the pattern will continue,” he says. “If that’s the case, you should look into other options to help your financial situation.”
Scrutinize the annual fee.
You may be getting a credit card because of the abundance of bonus points, miles or cash incentives that are being offered, but be wary of enticing promotions, Teixeira cautions. “Those benefits may be effectively canceled out by an annual fee — essentially money you’re paying in order to borrow money with interest,” Teixeira says. There may be other fees you aren’t crazy about, such as a foreign transaction fee, he says. Still, the annual fee, which with some credit cards can be as high as $450 and $550, is usually the most expensive fee you’ll deal with.
Evaluate the pros and cons of zero percent introductory APR offers.
Many credit cards, such as the Chase Freedom Unlimited card and Capital One Venture Rewards Credit Card, will offer a zero percent interest rate for 12 to 18 months, and many cardholders will then make a big purchase and take their time paying the debt off. That can be a great deal, but only if you’re disciplined enough to make those payments, Boggs stresses. “Even though you are charged zero percent interest, the interest is accruing,” he warns. “Look at the deferred interest line of your statement.”
There could be limitations hidden in the fine print.
While the bonus offers credit card companies put out are often tempting, there are some caveats, Teixeira warns. “Extra cash back, tens of thousands of bonus miles and low rates are often used to entice consumers to sign up for new cards,” he says. But those perks can come with a price that’s often buried in the fine print and legalese. Teixeira suggests you review the requirements for bonuses, which often include spending a certain amount of money within a specified time frame. “With all the information in front of you, determine if those sign-up bonuses are not only worth it, but if it will have a positive impact on your personal bottom line,” he says.
Applying for another credit card may raise your credit score.
Getting another credit card could give your credit a boost immediately, says Katie Ross, education and development manager for the national financial education nonprofit American Consumer Credit Counseling, headquartered in Newton, Massachusetts. That’s because of what’s known as credit utilization. “Credit utilization, or how much of your available credit is being used, is 30 percent of your credit score,” Ross says. Remember, the more available credit you have, the better in the eyes of a lender. It could help in other ways, too. “If you have poor credit, you can improve your score by making your monthly payments on your new card on time and ideally paying your balance in full each billing cycle,” Ross says.
An additional credit card could also lower your credit score.
Remember, if you get a new credit card and immediately make a big charge on it, “you will have a high credit utilization and your credit score will suffer,” Ross says. While a new piece of plastic should improve your credit utilization, “15 percent of your score is based on credit age, which measures the amount of time you have been using credit. The more experience you have, the better your score will be,” Ross says. So what’s the problem with getting a new credit card? “Credit age is based on two factors — the age of your oldest account and the average age of all your accounts. Opening a new card will lower the average age of all your accounts,” Ross says.
Don’t apply for a credit card if you’re planning to take out a big loan soon.
“If people are expecting to apply for a large loan — like a mortgage or auto loan — in the near future, they may want to wait to apply for a new credit card until after they receive the loan,” says Dave Rathmanner, based out of New York City and the vice president of content for LendEDU, a loan comparison website. And he has a reason beyond the credit age and credit utilization factors. “This is because when you apply for a new credit card, lenders will often perform a hard credit check that will ding your score a few points,” Rathmanner says.
Brush up on your personal and financial information.
It may sound like a no-brainer, but you will need to have things handy, like your annual salary, your Social Security number, your birth date and address to submit your application. If you’re wary of providing your Social Security number, you may be able to give out an Individual Taxpayer Identification Number, or ITIN, instead. But don’t count on it. Generally, credit card issuers need your Social Security number to check your credit. Also, resist the urge to suggest your annual income is higher than it is. That could get you swiftly declined if the credit card issuer discovers you’ve provided inaccurate information on your application.
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9 Things to Know Before You Get Another Credit Card originally appeared on usnews.com
