Opening a credit card may be enticing, whether you need an easy way to pay for purchases or want cardholder perks and rewards. But a new credit card isn’t always a good idea.
You may want to avoid opening a credit card in these situations:
— When a new account hurts your credit
— When you plan to apply for a loan
— When your chances of approval are slim
— When you struggle to manage debt
— When you haven’t researched other credit card options
Here’s more about when you are better off not getting another credit card.
[Read: Best Rewards Credit Cards.]
Does Opening a Credit Card Hurt Your Credit Score?
In the short term, a new credit card could ding your credit score, but long-term responsible use could improve your credit rating.
If you’re working hard to improve your credit score, the hard inquiry from applying for a new account may temporarily lower your score.
“Hard inquiries include a lender checking your credit for a loan or credit card, which may appear on your credit report and negatively affect your credit score,” says Brittney Castro, a certified financial planner who works with Intuit’s Mint and Turbo.
Thankfully, credit inquiries don’t hurt your score forever, and they only affect new credit, which accounts for a small part of your FICO score.
“The credit inquiry will stay on your credit report for two years, but its effect wears off after a short period of time,” says Patrick Beckman, contributing finance editor for the review blog Rave Reviews.
That said, applying for several credit cards at the same time can add a lot of hard inquiries to your credit report. “The more frequently your credit is exposed to hard inquiries, the more your score is susceptible to negative hits,” Castro says.
Once you receive a new card, the key is to use it responsibly. Making on-time payments on your new card can help bolster the payment history part of your credit score — the most important factor. If you miss a payment, this can cause significant damage.
Your new card also gives you access to more credit, which can help the amounts owed portion of your credit score if you lower your overall credit utilization ratio. That is how much of your total available credit that you’re using.
The card can have the opposite effect, though, if you quickly run up a balance.
In addition, scoring factors such as credit mix and length of credit history may be affected, based on your record. But the former accounts for 10% and the latter for 15% of your FICO credit score.
[Read: Best 0% APR Credit Cards.]
When Is Opening a Credit Card a Bad Idea?
One of the worst times to open a credit card is when you’re about to take out a big loan, such as a mortgage.
“Because a credit inquiry can lower your score slightly in the short term, you don’t want to apply for a new credit card anytime you will need your score in top shape in the near future. This can include before applying for a loan, taking out a mortgage or refinancing student loans,” Beckman says.
While inquiries don’t do a lot of damage to your credit score, every point counts to qualify for the best interest rates. Banks typically use credit score tiers, among other factors, to determine your loan’s interest rate. That means if an inquiry drops your score from the good credit range to the fair credit range, you might pay more for your loan.
“If you are applying for a mortgage, even a tenth of a percentage higher interest rate can equate to hundreds or thousands of dollars over the life of the loan,” Beckman says.
Another bad time to apply for a credit card is when you know you don’t have a good shot at approval.
Some credit cards allow you to get preapproved with a soft inquiry, which doesn’t hurt your credit score but does indicate whether you’re likely to be approved. “Making a soft inquiry before applying for a new card is a good idea to assess your current credit situation and whether it is a smart idea to apply for a new card,” Castro says.
At the same time, access to even more credit may not be the solution you’re looking for if you’re struggling with debt.
Some people use zero-interest balance transfer offers to get out of debt faster, as their payments only go toward principal — often for at least a year. But balance transfer cards may lead people to dig themselves deeper into debt.
Lastly, never apply for a credit card if you aren’t an informed consumer: Always research your options. Compare the best credit cards to choose the right one for your needs.
[Read: Best Cash Back Credit Cards.]
How Long Should You Wait Between Applying for Credit Cards?
How long you should wait depends on your situation. Consider holding off for four months between card applications, but if you’re applying for a mortgage soon, six months is a safer bet.
“The primary thing to be aware of is that your credit score will take a slight hit every time you apply for a new credit card, regardless of approval,” Beckman says.
Some people want to get into rewards credit cards once their score is high enough. But should you avoid applying for two credit cards in one day? And does opening multiple credit cards hurt your credit score?
You can apply and get approved for more than one credit card in a day, but being in a rush can backfire. “Opening too many new credit lines can negatively impact your credit,” Castro says.
Instead, consider which credit card can benefit you the most and apply for that one, assuming you expect to get approved.
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