Are You Ready for Another Credit Card? Six Questions to Ask Yourself

When mulling whether or not procure an additional credit card, there are several important factors to consider. After all, taking on additional credit usually means you’ll soon be accruing additional debt, which is something that should be entered into responsibly and only after you are fully aware of what you’re getting yourself into and what that might mean for your financial situation.

In this post, we’ll discuss the pros and cons of adding another credit card to your financial portfolio and how that decision could negatively or positively affect not only your credit score but other money matters that impact your day-to-day life and your overall financial picture. Here are a few questions to ask yourself before you fill out that application for another piece of plastic.

1. How well are you managing your current credit cards? In many cases, history is a good indicator of future performance and how well you manage your revolving credit card debt is no exception. For example, if meeting even your monthly minimum payments is difficult, or worse, if you’ve been forced to make late payments because you couldn’t come up with the cash on time, those are major indicators that more credit is the last thing you need. Instead, you’d be better served by a reevaluation of your income and expenses along with a budget that reflects those realities and places priority on bill payment and driving down debt before extra spending.
2. Why do you want a new card and how do you intend to use it? Accepting and subsequently managing more debt is a huge responsibility that could lead to a stronger credit rating or a bigger pile of debt to pay off, so it makes sense to have solid and sensible reasons for heading down that road. Are you looking for a card that offers airline miles or one with a generous reward plan you will likely use? Do you need a zero-percent card to use in case of emergencies or to transfer a high-interest balance? Any of these reasons might be good cause for a new line of credit, but remember any related payments need to fit your budget and be managed responsibly. However, if you’re thinking of pocketing new plastic simply because your other cards are maxed out and that new big-screen TV or other unnecessary (and often expensive) item is calling your name, then I’d advise you to kick that temptation to the curb and make a run for it.
3. Has your credit score leveled out and you’re looking to raise it? If so, an additional credit card could help, but once again, not maxing it out and paying bills on time all the time is key to making that happen. Be aware, however, it will take a few months before your credit starts its upward journey so be patient, all the while charging only what you can pay off each month. Also, be sure not to cancel any of your other cards as this will mean a dip in your score.
4. What is the proposed card’s interest rate and does it have an annual fee and, if so, what’s the rate? Aside from what you actually charge on your card, these fees have a direct and lasting impact on your balance and they should be seriously considered. There should be no doubt about how much interest you’ll be paying each month and how that number compares to other cards. Same goes for the annual fee. Many cards don’t come with such a fee, but for those that do the rate can vary widely, some as much as $500, so it’s prudent to know the details before you sign on the dotted line. Remember, if you secure the card, begin charging irresponsibly and end up with a balance that’s hovering perilously close to the limit, an unexpected annual fee charge can send you over the limit, resulting in a litany of new fees that will only bury you deeper.
5. Are you looking to buy a new home or a new car? If either of these purchases are in your new future, you’re likely better off saving that new credit card application until after your purchase is final. Here’s why. For one year after you apply, that request is logged on your credit report as “new credit” which lowers your score a bit. When looking to secure a major loan this isn’t the direction you want your score to go, so it’s best to postpone these purchases until you’ve secured the more important one.
6. How long is your credit history? Whether or not you’ll be approved for another card is partly dependent on how long you’ve had and responsibly managed your existing credit. Usually lenders like you to demonstrate at least six months of good credit history before they’ll be willing to extend additional credit. Also, the shorter your history, the higher your interest rate is likely to be, as you’ve not fully established you manage your finances well and lenders might be a bit more squeamish when it comes to taking a risk on you. Bottom line is if you haven’t managed your existing credit for at least a year it’s best to hold off at least that long before you seek out an additional line of credit, lest you find yourself saddled with a high-interest card.

I hope these six tips have served as good jumping-off point for those of you looking to increase your credit options for any reason. But remember, if you find your cash concerns aren’t limited to the quirks and curiosities listed above, the team at DebtGuru.com is on hand to help you sort it out.