Last Updated on May 21, 2021 by MoneyVisual
If you are thinking about getting a credit card, then there are a few things you should bear in mind before you make that decision. Firstly, you should take a good look at your current finances if you want to take out (another) credit card. Yes, there are benefits to opening a new credit card account.
The first thing that could potentially benefit you is that, by opening a new credit account, you could increase your credit score, give yourself a back up in the case of emergencies and also decrease your interest rates. However, you could also end up damaging your credit score, increasing your credit score and leave you stranded on an island of debt.
Are credit cards good or bad? The answer to this question is not as simple as you may want it to be. Credit cards are not good, and they are not bad either. They are a tool for you to use. Moreover, the way that you use it is what will determine it to be either an excellent financial tool or a negative one. On its own, a credit card is powerless. However, it can render great economic harm, or significant financial gain, depending on how you choose to use it.
Before you open up a new credit card account, there are several questions you should ask yourself…
1. What is your Current Credit Score?
Before you reach out for a new credit card, you should be clear on what your current credit score is. If you are not applying for a new credit card in the hopes of rebuilding your credit, then you should only apply for a new credit card if your credit score is considered to be good.
What is a ‘good’ credit score? Generally speaking, a ‘good’ credit score will be one that is above 700 points.
Once you apply for a credit application, your credit report will be subject to what is known as a ‘hard inquiry.’ This hard inquiry will result, unfortunately, in a decreased credit score; however, this decrease is usually only temporary.
If you have a good credit score, then you can afford this temporary and small decrease. However, if you are on the border of ‘good’ and ‘bad’ credit score, then you may not be able to afford this temporary dip in your credit rating.
If you have a low credit rating, it isn’t a good idea to apply for a new credit card unless your chances are high that you will receive approval.
2. How Recently did you Apply for a Credit Card?
Have you recently applied for a new credit card? If you have applied for a new credit card within the past six months, then you shouldn’t be looking for a new credit card. It would be best if you waited at least six months before you apply for a new credit account. As we have already mentioned, once you apply for a credit card, your credit score will be slightly lowered due to the hard inquiry.
After half a year or even one year, however, your credit rating should be back up. If you apply before the six month waiting period, you risk damaging your credit rating even more- to the point that it won’t bounce back up. What’s more, if your lenders see that there is an excessive amount of credit card applications within a short period, then this activity is flagged as ‘high risk’ activity.
3. Have You Looked at the Competition?
If you are looking for a new credit card account, then you should shop around and do your homework to find one that suits you and your financial needs best. You should consider whether or not you are looking for a credit card account that will help to boost your credit rating, or if you are looking for a new credit account to help you to get rid of some existing debt.
Alternatively, are you looking for a new credit account that can offer you cash back or extra rewards? There are many different credit cards, some designed to help you to get out of credit card hardship, and others designed to offer you the best rewards system. Once you have a clear idea of what type of credit account will suit you, you can shop around for the best one.
4. What’s in your Planned Financial Future?
If you are planning on making a significant financial investment within the next 24 months, then you should think about waiting on the new credit card. Why? Well, when it comes to getting the best (read: lowest) interest rates, every single point on your credit rating will make a difference. Therefore, even a small drop on your credit score will harm your future interest rates on your major financial purchase (purchasing a car or a home).
When the time comes for you to finance the home of your dreams, you don’t want to end up paying extra on the interest rate just because you made a rash decision for getting a new credit card.
5. How are Your Spending Habits?
It’s time to get honest with yourself; do you have your spending habits under control?
Yes, some credit accounts can offer significant benefits, but you also run the risk of getting yourself into some serious credit card debt.
Be honest with yourself about whether or not you truly need a credit card or if you are merely looking for another route to finance the unnecessary things you usually can’t afford.
6. Are You Already Making Late Payments?
If you are already making late payments on your existing credit cards, then you should be cautious about opening another credit card account. Remember, 35% of your credit score is made up of your payment history.
Moreover, finally, we arrive at the final question…
7. Are You Aware of the Terms and Conditions?
If you have reached the end of this article and decide to opt for a new credit card, then make sure you read all of the terms and conditions. Ensure that you understand them thoroughly before you sign off for a new credit card account.