One of the most important financial decisions you’ll make is choosing a credit card. Timing is everything. Before you apply for a card, you’ll want to ask yourself these 5 questions to make sure the time is right to charge forward.
If you’re like most Americans, chances are you receive credit card solicitations on a regular basis. These prescreened credit card offers are meant to entice you to apply for new credit. And sometimes the cards that are offered can be a good deal.
But don’t get too excited, especially if you know your credit card score isn’t too great. Even though these offers say they’re pre-approved, it just means you are pre-approved to apply. So you could apply and then get turned down, which isn’t good for your credit score. Or you could apply and get a new credit card–which could also be bad for your credit if you don’t make good decisions with it.
Of course, applying for a new credit card isn’t necessarily a bad thing. Some of today’s bonus offers are very enticing and could save you a lot of money when used wisely and well. But you need to be sure you’re applying for the right credit card and for the right reasons.
To figure out if this is the case, use this quick list of questions any time you’re about to apply for a new credit card.
1. Am I likely to qualify for this credit card?
First, you need to figure out how likely you are to qualify for the credit card in question. Remember that just because you’re getting the offer doesn’t necessarily mean you’ll qualify. So do your homework before you start haphazardly filling out applications.
Luckily there are some simple ways to make this happen. More and more websites are popping up that allow you to get an educational copy of your credit score for free. Some of my personal favorites include Credit Karma and Quizzle.
These sites give you your score for free, but they make money by recommending financial products to you based on that score. If you start an account with one of these sites, you can look at credit card offers for which you’re likely to qualify.
You can also do some digging around online to find the card’s average approved credit score. If you don’t come in above that score, try applying for a different one if you actually need the credit.
2. Is more credit going to cause spending problems?
If you’re already in credit card debt, you may want to hold off on getting another new credit card. Carrying more than one card can be helpful. But carrying balances is definitely not.
Consumers are more likely to overspend with plastic than with cash. And if you’re trying to meet a credit card’s threshold for introductory bonuses, that problem could be compounded.
So unless you’re currently free from credit card debt and in real control of your spending, think twice before you decide to open a new credit card account.
3. Do I understand how the rewards work?
Maybe you’re considering getting a new credit card because you like its rewards system. That’s not a bad thing. If you can pay off your balance each month, you can net some serious rewards from today’s travel and cash back credit cards. The key is to find a card–or a couple of different ones–that suits your current spending patterns.
So if you don’t understand how a credit card’s rewards system works, don’t apply yet. Read the fine print to find out how the rewards work and look out for common cash-back traps. For instance, multiple cards that favor grocery store spending exclude many stores, like big box stores and warehouse stores, where you may do most of your grocery shopping. That’s a no-go unless you decide to seriously change your shopping habits–which would likely end up costing you money.
These days, rewards systems are often fairly streamlined. But you still need to understand how spending is most rewarded. Find out if you need to sign up for rotating categories and other details about the rewards card. Be sure you’re on top of this before you apply.
4. Will the rewards system change my spending habits?
“Hacking” a credit card by leveraging it to get rewards on money you’re already spending is a great option. But you have to be disciplined to make this work without actually spending more money than you would otherwise.
For instance, say you apply for a card with a great cash back bonus as long as you spend $2,000 in the first three months of card ownership. For many families, that’s not a hard threshold to hit. Just use the card whenever you buy gas or groceries for three months, and you’re there.
But if you’re a single person living on a tight budget, that may be a stretch, especially if you can’t pay things like your rent or mortgage with the credit card. Trying to get to that bonus threshold could lead you to spending more money or even carrying debt from month to month. And that’s just not worth the rewards.
Again, ask yourself if you’re actually disciplined enough to handle this card wisely and well before you apply.
5. Are you simply desperate for credit?
If you’re applying for credit cards left and right just because you really need credit, you need to take a step back. Getting into a cycle of applying for more cards and running up more debt won’t get you anywhere. In fact, after just one or two cards in a few months’ time, you’ll likely find yourself completely out of credit options.
When you find yourself in this type of situation, it’s time to rethink your finances. This may mean radically restructuring your budget. It might mean taking on an extra job so that you can get out of debt, or even applying for federal or local assistance programs. But right now, applying for more credit is not what you need to be doing.
In fact, applying for another credit card, especially if you’re already in debt or have applied for other cards recently, will only put you in a worse situation. The application itself will ding your credit slightly and if it’s one of a string of similar applications, the drop will be even deeper.
Credit cards, and their attached rewards, can be a great tool for building credit and earning rewards from the spending you’re already doing. But that doesn’t mean you should apply for every credit card offer that hits your mailbox, inbox or that you find online. Instead, take the time to think the decision through before you put in your application and have to deal with the potential consequences.
Published or updated May 29, 2018.
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