4 Things to Ask Yourself Before Getting a New Credit Card
by Eric Volkman | Nov. 23, 2018
You should never blindly apply for a credit card. Here are several key factors to ponder before vying for one.
So you’ve got the itch for some new plastic, eh? You feel that it’s time to get another credit card to add to the collection in your wallet.
Although it’s a good feeling to have more credit available to you, that might not necessarily be the right move for your circumstances. Here are four questions to ponder before filling out that application and clicking the Submit button.
1. Do I need more credit?
Many people make the mistake of obtaining a new card simply because they can. Perhaps they’re responding to a compelling marketing pitch from one of their favorite retailers, or the promise of easy approval from a solicitation that lands in their mailbox.
If this happens to you, though, you should think twice about taking up the offer. If you’ve got all the credit you already require, including some room for financial emergencies, there’s little to be gained from having another card.
In fact, it can be more burden than boon for numerous reasons. There’s the temptation aspect -- you have a shiny new card with $0 balance, why not live a little? This risks putting your budget out of kilter. Also, you’ll own yet another asset that must be monitored and managed. Our lives are cluttered enough already; do you really need an additional hassle, small as it might be?
2. What’s the right type of card for me?
Okay, perhaps you’ve got some room in your budget and enough time to manage a new debt product -- you are truly ready for a new card! Congratulations. But those marketing pitches are coming on strong, and your research indicates there are hundreds of other cards to apply for. So the big, important question becomes, which card is most ideal for your situation?
A good next move would be to determine the broad category of card you’re after. Popular ones include:
Cash back -- These cards earn cash back in various forms (statement credit, cold hard cash, gift cards, etc.) for each qualifying purchase made on the plastic. Some cash back cards earn cash rewards at higher rates for particular product/service categories (gas, groceries, restaurants, entertainment, etc.), which may or may not change on a quarterly basis.
Premium -- These top-shelf cards offer many perks and generally higher credit limits. They nearly always carry an annual fee, however, so buyer beware. Features of these cards can include:
- Free airport lounge access
- Credits for ride-sharing services
- Credits for air tickets
- 24/7 concierge services
Travel -- People with wandering feet love to earn air miles or points on qualifying purchases with these cards. Accumulating rewards helps pay for flight tickets, hotel stays, vacation packages, etc. Some cards, such as those co-branded with airlines, earn for that airline’s frequent flyer program. Others earn generic miles or points that can be used more flexibly.
3. Are intro bonuses important to me?
Since the credit card space is so crowded and competitive, issuers must step up their game to attract customers. A clever would-be cardholder can take advantage of the offer or combination of offers that are most suitable for his or her situation, for example:
0% APR for balance transfers -- This is ideal for people that have significant balances on interest-bearing cards; transferring to a 0% intro APR card provides more time to pay off those balances without being charged interest. Note: many cards with a 0% intro APR for balance transfers charge a balance transfer fee, typically around 3%.
0% APR for purchases -- Do you have a big-ticket buy you’ve been planning, but are afraid to take on too much interest-bearing debt in one transaction? If yes, consider taking advantage of a 0% intro APR for purchases offer. Slapping your new credit card down for your big new toy will give you at least several months to pay it off gradually before the standard APR kicks in.
Sign-up bonus -- A generous one-time cash-back/points/miles sign-up bonus is extremely tempting. You should inspect the offer carefully, though, and compare it to others. Most critically, can you make the threshold? In almost all instances, the sign-up bonus is only earned if you spend at least a certain amount within a few months of owning the card.
Intro bonuses shouldn’t be your only motivation in vying for the card. The chosen product should have other characteristics that are appropriate for your budget, spending plans, and consumer habits.
4. Is my credit score high enough for approval?
Every credit card application generates a so-called “hard inquiry” in which a potential issuer checks your credit history. Each hard inquiry, though, reduces your credit score by a handful of points. So you shouldn’t cavalierly apply for any random card.
It’s not hard to determine what kind of card you might be eligible for. The first thing to do is pull a recent credit report from one of the three credit bureaus. Each are obligated to provide one free report per year, so take advantage of that if you haven’t done so already. This will give you a solid fix on your score.
You can also pay to have access on a more constant basis; some cards even offer these for free and perhaps you already have one in your current portfolio.
Then you’ll want to figure out what sort of score range an issuer is looking for with the card you’re interested in. Most issuers provide at least some guidance in this regard, although numerous factors will weigh in their ultimate decision whether to grant you the card.
If your score seems to be within their range, and your credit history indicates some prudent debt management habits, go ahead and apply. Good luck!
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