4 Things to Consider Before Applying for a Credit CardJuly 19, 2010 - 2:11 pm
As the credit card world spiraled out of control recently, a lot of card holders had to take stock of what they were doing with their credit. Credit card companies were raising rates and closing accounts, affecting the credit scores of millions. Now, regulations have changed thanks to the CARD Act and individuals applying for new credit card accounts need to be more conscientious in their search for new credit cards. Here are 4 things you need to consider before getting a credit card:
Have You Checked Your Credit Score?
In order to get the best rates and deals, your credit score needs to be top-notch. If you apply for credit without knowing your score, you may be limited in your card choices. Lower credit scores may dictate you can only get pre-paid, secured credit cards. Higher credit scores allow you access to better rewards programs and the best interest rates. Pay the fee (usually $15) and request a copy of your score from one or all of the three major credit bureaus (Experian, TransUnion, and Equifax). If your score falls below 680, hold off on applying for new credit until you can improve your score.
Do You Know What You Need?
If you open a credit card that promotes gas rewards but you don’t own a vehicle, the card does not really fit in with your lifestyle. Explore the different types of credit cards on the market to determine which type works for you. There are a number of rewards cards that cater to almost every individual. You may find that cash back cards fit the bill or you can get more specific based on the places you shop and the things you buy. You also need to compare different cards to understand interest rates, grace periods, and consequences should you default on your payments.
Do You Know How Credit Cards Work?
If you are new to the credit card world, you need to have a clear understanding of what you are getting into before you commit to a card. In the past, too many people opened credit card accounts without understanding the obligation that goes along with them. Credit cards are not free money or an extension of your income. You need to have the cash equivalent of the purchases you make on credit to ensure you can always pay the bill. If you do not understand the terms and conditions of a credit card, you will likely end up in more credit card debt than you can handle and potentially ruin your credit score. Become familiar with the terminology used with credit cards and always make sure to pay your bill on time each month. Pay more than the minimum as often as you can if you can not make the payment in full.
Do You Really Need a Credit Card?
If you are trying to establish credit, a credit card is an avenue to achieve your goal. Provided you use your credit card and pay your bill responsibly, the credit card company will report monthly to the credit bureaus. A good credit score is a necessity for many things in life and building a solid credit history is key for stable finances. Misusing a credit card however can ruin your credit. Never open a credit card account solely because you want to have some plastic. If you open too many accounts, you risk hurting your credit score and overspending. It is sound financial advice to have at least one credit card to be used in the event of emergencies or to receive valuable bonuses but you need to be selective in which kind of credit card you choose to carry based on your own financial needs and goals.
Credit cards are serious business and with so many options today, potential card holders need to really think through their choices. A credit card can be a building block to good credit but it can also knock down a financial foundation if not used properly. Compare several credit cards before making a choice.
- Trying to Boost Your Credit Score? A Credit Card Can Help
- Credit Cards for Those with Low or No Credit Scores
- Handling a New Credit Card When You’ve Been Out of the Credit Game
- 5 Things to Know Before Applying for a Credit Card
- Your Credit Score And Three Things You May Not Know That Can Cause It To Decrease