A credit card can be a tool to make or break your finances. But it is not the ownership that will get you into trouble. In fact, you can own multiple credit cards and still be debt free. What matters most is how you behave and use your cards. Even if you own only one card and yet you do not know how to apply the right credit management skills, you will not be successful in your pursuit of debt freedom. It is not in the number of cards that you own. It is how you decide to use each and every one of them for your own financial benefit.
Some financial experts preach that you should let your credit cards go.
This is not always true. You have to realize that eliminating these cards in your life is not always practical. It may keep you from overspending on the cards but this will not always be in your best interest. If you have no other loans, your credit score can suffer. And applying for a new loan with a bad score can be very vexing.
So keep the credit cards and even if you need to apply for a new one, just make sure that you have the right reasons for adding one more card to your wallet.
5 reasons it is okay to get a new credit card
According to CreditCards.com, the total number of credit cards in the US as of Q3 in 2013 was at 391.24 million. In 2012, the average credit card per consumer if 1.96. In Q2 of the same year, the demand to gain consumer credit went up to 21.4%. This means that after the recession, people started to gain confidence in taking on credit once more – including credit cards. So if you feel like you need a new card, you are not alone. A lot of people have been applying for credit accounts. But make sure that unlike some of them, you will not apply blindly.
There are right and wrongs ways to do anything and the same is true when applying for a new card. To help you decide if an application is needed or not, we have compiled 5 reasons that are acceptable in getting that new credit card.
- You want better rewards. The rewards programs that are offered by creditors are not only there to entice you to open an account with them. It is also there to help you maximize the benefits of being a responsible card holder. That being said, you need to review your existing credit cards to see if they are still aligned with your spending habits. It is natural that your behavior will change as your status and priorities in life go through changes too. Make sure that you change your rewards programs along with that. For instance, if you just opened a business, you may want to apply for a new credit card that is specific for your company alone. If the business requires you to travel, then a travel rewards card should be a great addition to your other cards.
- You want a better credit score. If you want to improve your credit score, you need to be cautious of your credit limit. The ideal balance should be 30% or less of your credit limit. If the total debt that you owe is 50% of your total credit limit, then you know that you are in trouble. But if you open a new card, your limit will increase and thus improve your credit utilization. That should be a swift way to work on your credit score. Just make sure that you keep the new balance to limit ratio below 30% so you do not have to open another card just to get it down.
- You need to transfer balances of high interest cards. Another good reason to apply for a new card is for debt consolidation purposes. Consolidating debts with 0% balance transfer credit cards is an effective way to help you pay off the high interest balance on your old cards. Sometimes, the high interest on credit cards can eat up your limited resources. By transferring it to a new 0% interest card, you are giving yourself a better chance at paying off the principal of your credit card debt.
- You want to escape the undesirable terms of your old card. What you have to understand is that creditors are legally allowed to change interest rates and even some of your terms. If the changes are no longer in line with your spending behavior, you might end up making that wrong choices about the use of your card. If that happens, the chances of you making unnecessary expenses might be higher.
- You are looking for a lower interest rate. In most cases, consumers start with their new credit card account with a low interest rate. As mentioned, creditors are allowed to change their rates and that includes increasing it. You have the option to say no to these changes but you may have to look for a new card. The old creditor has the option to retain your old rate or agree to close your account but you have to pay off your balance. Closing one account means you lose a card and a new one might be needed to replace it.
Tips when applying for a new credit account
When you are applying for a new card, it is vital for you to learn how to manage your credit cards wisely. To do that, you need to select the right credit card. Here are a few tips that you may want to consider.
- Know the creditor you will get the account from. It is helpful to know the company behind the account that you plan to open.
- Read and understand that terms. All credit card applications come with terms and conditions. Make time to read and understand these fine prints. You may be signing up for high fees and penalty charges that your income is not prepared to pay for.
- Have a clear grasp of your spending lifestyle. This knowledge will help you understand the qualities that your credit card should have. You will know what type of rewards you want in your card or the interest rate that you can afford to pay off.
- Plan how you will use your card. Before you apply for a new credit card, make sure that you know how you will use it. Will it be used for your groceries? If so, then ensure that you will stick to this. If not, then you might end up using it some unnecessary purchases.
It is helpful to do your research about the latest rates and credit card offers. You can read reviews and studies done by authority websites to get this information. For instance, Card Hub conducts a card application study that will help you determine which company offers the best terms. They also rank the companies according to their transparency. In their 2013 Credit Card Application Study published on their site, CardHub.com, they visited, interviews an scrutinized the online applications of the top credit card issuers in the country. They evaluated which of them were transparent with key information that is needed by consumers to make smart choices about their cards. You need to look at these reviews to enrich your knowledge before making a decision on the card you will use.