Choosing a new credit card should not be taken lightly. Although a lot of people own more than one credit card account, that does not mean you should approach it carelessly. According to statistics, the average credit card holder owns more than 2 accounts. Each of these accounts has an average balance of $2,360 – making the average total balance $5,551 per credit card owner.
There is nothing wrong with owning more than one credit card. Sometimes, it can be beneficial for specific types of consumers. But before you apply for a new account, it is important for you to be wise about it. You do not just get a new credit card just because it was offered to you when you checked out of a store. This is not something you opt for on an impulse so you can enjoy the introductory rewards that are offered upfront.
If you know how to use it properly, that credit card can be used to improve your finances. It is not just about knowing how to use the card. Using it to improve your finances means you have to choose the with card first.
Do these 4 things when choosing a new credit card
In order to choose the right credit card, you have to know why you want to have one. What is the purpose of the card? There are right and wrong reasons to get another credit card. If you have the right reasons, it can motivate you to use it properly and wisely. It will help you decide what type of card you will open.
As you are trying to choose a new credit card, there are 4 things that you need to do.
Know your options
First of all, you have to research your options. If you need a credit card that you can use for your travels, you want to make sure that you look at all the cards that you can use. Make sure you read the reviews about the cards and compare them with similar types. There are sites that will give you a thorough comparison of all the cards that you can opt for. Look at the reviews of these cards. Try not to focus too much on the interest rate alone. Look at the annual fees, penalties, etc. While you are studying your options, keep in mind why you are getting a new credit card in the first place. It will help filter through your options.
Scrutinize the rewards
According to a survey, more than half of their respondents admitted that they choose a new card because of the rewards program. But try not to focus on that as well. The rewards may be very attractive but you have to scrutinize it against all the other fees that you need to pay while using the card. Not only that, you have to choose a reward that you will use. If you are rewarded with travel miles but you rarely go on a vacation, that reward will be wasted. You might be better off with a cash-back reward or credit points that you can convert into something that you can actually use. Knowing the rewards of the credit card is important so you can maximize it. Just make sure that this is not the main reason why you are choosing this type of card.
Do not close old accounts
If you will get a new credit card to replace an old one, do not be too quick to close the latter. Keeping your old accounts can actually help boost your credit score. It will also give you a bigger limit – thus making your credit utilization rate less of a problem. You can keep the major expenses on the new card but try to use the old one for small purchases that you can pay off in full. The only time it is reasonable to close a credit card is when there is a high annual fee and you really have no need to use it anymore.
Think about “when”
Finally, you have to consider if it is the perfect time for you to get a new credit card. Remember that your application will prompt the credit card company to pull out a hard credit inquiry. This can temporarily pull your credit score down. If you have a need for a near-perfect credit score, you might want to postpone the application. Also, if you have a bad credit score, you also need to postpone this application. A bad score will lead to a higher interest rate on the new account. So try to build your score up first before you proceed.
Make sure you do all of these before you proceed to apply for a new credit card. It will ensure that you are making the right choice as you add to your purchasing tools.
Smart reasons to get a new credit card
We’ve mentioned early in this article that is it important for you to have the right reasons when applying for another credit card account. If you are applying because you want to borrow more money because you’ve maxed out your existing cards – you can stop right now. This is the specific reason why you should not own a credit card. If you have the intention of maxing it out like what you did to your first card, that will quickly get out of control. It will lead to your financial demise.
However, if you have more sense than that – then you should have another reason to add to your credit card accounts. Fortunately, there are several smart reasons to get a new card.
When it is aligned with your spending plan
We all have our unique way of spending. If the new card is aligned to your spending plan, more so than your current account, then it is worth opening. For instance, if you always travel on business, having a travel rewards credit card should benefit you greatly. According to a recent survey, 3 out of 10 respondents revealed that they got more than $500 in rewards because of their travel credit card. Of course, this is not just for travelers. If you frequent a particular store, getting their credit card will also benefit you. It can either be as a cashback reward or credit point system.
You can use these cards in the same way that you use your cash. You will get rewarded for the frequency of its use. Of course, you just have to make sure that the cash is secure and strictly budgeted. That way, you can pay off your dues completely when the billing statement arrives.
When it can improve your credit score
Another good reason to get a new credit card is when you need to improve your credit score. After you get through the negative effects of the card application, your score will pull up once the new limit is added to your current one. The credit utilization ratio will go down. As long as you are careful when using this new card and you pay off your balance, your score will continue to go up.
When it can back up your emergency fund
The last reason to justify getting a new credit card is intending to use it as a backup emergency fund. Please take note that this is meant to be a backup card. It should never be used as your primary reserve fund. Having a cash emergency fund is still important. But having a card to support that is better. You can use this card case this cash fund is depleted will help make you feel more secure about your finances. Besides if you lose your primary credit card, you still have one to use.