- Personal Finance
8 Crucial Things to Consider Before Getting a New Credit Card
Getting a credit card offer in the mail can be exciting. It opens up a whole new line of possibilities for purchasing that item that you couldn’t afford before or, for some, it offers a sense of security as an emergency fund in case something breaks down and you need to fix it right away. But is a new credit card right for you? Here are some questions you should ask yourself before you decide to get another card to put in your wallet.
- Do I have too many cards already? It might seem fun to have a stack of credit cards to choose from in your wallet when you go shopping. But did you know that too many credit cards can actually damage your credit score? This is true especially if you carry a balance on all of them. Not only that, but too many credit cards can cause you to overspend when you go to the store. Most financial experts agree that one or two credit cards should be the maximum that anyone has. If you already have a few, getting a new one may not be the best idea unless it has better terms and conditions than one you already have. In that case, cancel one of your current ones before getting a new one.
- Is this card just giving me a promotional rate? A new credit card may seem like a great idea because it might have 0% APR or some other feature that you find attractive. But how long do those promotional rates or features last? Many credit card companies may only offer this benefit for a few months before jacking up your rate without you even knowing about it. Others may drop the promotional rate as soon as you make a payment a day late. Always make your judgment based on the permanent interest rate instead of the promotional interest rate for a more responsible and informed financial decision.
- Do I have disciplined spending habits? If you are the type of person that likes to purchase things on an impulse (even those small items that stores place at the checkout stand to attract impulse buyers), you probably shouldn’t be signing up for new credit cards. Impulse buyers tend to spend much more than disciplined buyers and credit cards only make it easier for them to do it. Stick with the couple credit cards you already have or you could find yourself spending a lot more than you can afford.
- Do I know what I am getting into? When you sign up for a credit card, do you read the fine print? That’s where all of the conditions for the credit card are listed. It might seem boring and like a waste of time, but you need to know how much you will have to pay if you are late with a payment. Does the interest skyrocket if you make a late payment? What are the penalties for going over your credit limit? Are there fees that you have to pay if you don’t use the card enough? Or if you use it too much? These are just a couple things you should know before you sign your name to any new credit card application.
- What is the card company’s billing cycle? You might be asking yourself, “Why does it matter ?” But if you don’t know the company’s billing cycle, you could be paying hundreds of thousands of dollars unnecessarily. Are you responsible for paying interest from the day that you make a purchase? Or does the company offer a grace period before the interest kicks in? The grace period is very important. It doesn’t start on the day you receive your bill. It probably starts several days before that and you may only have a couple days for paying the bill on time once you receive it in the mail.
- What is my purpose for getting a new card? Do you need a card that you can use in case of emergencies? If so, a new card may be ideal for you. However, are you the types of person that can use it for emergencies and only emergencies? If you are using the “emergency” rationale as an excuse to get another card, you probably shouldn’t be getting one.
- Is this going to hurt my credit score? You can damage your credit score simply by having too many valid credit cards in your possession. Part of your score is determined by the amount of credit that you have available to you. So the more credit cards you have, the more credit you are going to have available to you. Lenders do not like this because then you have the potential to run up large bills that you won’t be able to pay. Keep the number of credit cards to a minimum if you ever plan to buy a house, a car or anything else that will need financing.
- Does it have a rewards program? While getting rewards from your credit card should not be a major consideration when you are considering a new card, it can help you choose one over another. Many credit cards offer frequent flier miles, cash back on some of your purchases, a discount on your fuel and much more. In the long run, these rewards could save you hundreds or even thousands of dollars if you use the card responsibly.
With all of the credit cards available to people with various credit histories and scores, it can be difficult to choose the best one that fits your needs. Credit cards should not be chosen on an impulse, but you should always choose your credit cards based on what fits your needs and spending habits. With a little research, you can find the ideal credit cards for you!