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Are you thinking about applying for another credit card?
Deciding whether you should apply for a new card depends on several factors, like how many cards you already have, what you plan to use the card for, and whether you plan on applying for any important loans in the near future.
Credit card applications can impact your credit scores, so it's important to be clear on your objectives before sending in any new applications.
Whether you already have several cards or you are applying for your first or second, here are a few things to think about when considering adding new plastic to your wallet.
1. Have you improved your credit score?
If someone asked you for a loan, you would be more likely to give them one if they had successfully repaid several in the past, not just one. Likewise, your credit history and your credit scores will often improve when you have a track record of on-time payments to several credit cards, not just a single one. This might not be very important if you already have a strong and lengthy credit history, but it's critical for those who are new to credit.
In addition to building your credit history, opening a new account will increase your available credit. This will reduce your debt-to-credit ratio for a given amount of debt, which could help your credit scores.
2. Are you planning on applying for any big loans?
Each time a lender requests your credit reports for a credit application—this happens each time you apply for a new credit card—a hard inquiry is recorded in your credit file. Hard inquiries remain a part of credit histories for up to two years, and too many inquiries in a short period of time can have a negative impact on your scores. If you're planning on applying for an important loan—like a mortgage or auto loan—limit the number of hard inquiries you incur before to make sure your credit scores are the best they can be for your important application.
3. Are you able to responsibly manage multiple accounts?
Some credit card users have a tough time managing their debt and making on-time payments with even just one card. If that's the case for you, it may not be the best idea to open a new account. But if you are comfortably able to manage all of your credit cards along with the rest of your personal finances, you might want to consider opening a new account when the right offer presents itself.
4. Are your current credit cards the best available?
The credit industry is extremely competitive, and card issuers are constantly releasing new products that offer greater rewards and benefits than their previous offerings. If you've been using the same credit cards for several years, there's a good chance you are no longer earning competitive rewards and benefits. Also, if your credit has improved since you last applied for a card, then you may be able to receive a lower interest rate from a new account. Take some time to see if there's a newer product available that meets your needs better than the card you have.
5. Have your needs changed?
When you carry a balance on your credit cards, then your first priority should be to find a card with the lowest interest rate while you pay down your debt. But if you always avoid interest charges by paying your statement balances in full, then it makes sense to earn rewards from your credit cards. If you've recently paid off your debt, or you've started carrying a balance, then your needs have changed and you should consider using a different card.
But even if you've always earned rewards from your credit cards, your needs might still have changed just enough to consider a new rewards credit card. For example, if you've recently started traveling more often, or are using a different airline, then you might want to consider an airline credit card that offers you perks like priority boarding and a free checked bag. Also, the right hotel card can be very valuable to frequent travelers.
6. Can you benefit from a promotional financing offer?
If you are struggling to pay off your credit card debt, then an interest-free balance transfer offer can be extremely valuable. These offers allow you to transfer a balance from one of your existing cards to your new account and avoid interest charges for a limited time. These offers last from six months to as long as 24 months, and are a great tool for paying off your debt. Just note that most cards impose a balance transfer fee of 3% to 5%, and you can't transfer your balance between two cards issued by the same bank or credit union.
7. Have you found an attractive sign-up bonus?
If you are a rewards card user, it can be very tempting to apply for a card with a generous sign-up bonus. Because banks compete so fiercely for new customers, they can offer tens of thousands of points or miles, or hundreds of dollars in cash back, just for giving their cards a try. Just remember that most of these offers have a minimum spending requirement to earn the bonus. For example, you might need to spend $3,000 within three months of account opening to earn your reward.
Bottom Line
More cards can sometimes mean more positive payment history, a lower credit utilization ratio and an increased number of accounts in your credit file—all of which can help grow your credit scores. But having too many cards can also hurt your scores if you don't handle them correctly.
Keep these tenets of good credit in mind to make sure your credit card usage helps your credit scores.
- Make all your payments on time. Payment history is the most important factor in calculating your credit scores, and even one 30-day late or missed payment can have a negative impact on your scores.
- Watch your credit utilization ratio. Your credit utilization ratio is the second most important aspect of your credit scores and is calculated by dividing the total amount of credit you're currently using by the total amount of all your credit limits. It is recommended to keep your credit utilization ratio around 30%—less than 10% is ideal.
If you decide the time is right for a new credit card, do your research to find out which credit cards might be right for you.