Most of us are inundated with credit card offers every day. They come in your mailbox, on the splash page of your bank's website, in your email and during transactions on sites like Amazon and eBay. And, with easy applications promising 30 second approval, it can be tempting to hit the button and sign up. But, savvy consumers need to know when to apply for that new card and when to pass it by.
First, Check the Terms
Is there an annual fee? Do they offer rewards that are better than any of your other cards? How's the interest rate? If the card is not a better deal than anything you currently have, toss the solicitation in the trash. Plus, as a rule, you should never take a card with an annual fee unless there are rewards that far exceed the fee or if it is the only card you can qualify for. Any applications for new cards should be ones that lower your expenditures on fees and interest or benefit you in some other way.
Are you Working to Build Credit?
Having unused available credit increases your credit score over time. Utilization makes up about 30% of your credit score. As a rule, you should have enough available credit that you can keep your utilization under 30% (some experts say 10%) when using your card for routine purchases. While you are building credit, it is a good idea to periodically ask a current cardholder to increase your limit or to apply for an additional card. Just don't apply often and do not run up your balance too close to your current limits.
Will Any of Your Current Cards Make a Deal?
If you see a new card with a balance transfer offer that looks enticing, try calling the card where you have a balance. They may be willing to drop your interest rate or increase your limit to keep you active with them.
Can You Afford the Inquiry?
Recent inquiries make up 10% of your credit score. If you are planning to make a big purchase soon such as a house, keep your credit report free of credit card inquiries. Even a small dip in your credit score can push you to a deal with a higher interest rate, costing you thousands over the life of the loan. If you were borderline in the first place, it might make it impossible for you to qualify for a mortgage. While inquiries stay on your credit report for 2 years, FICO considers those from the last 12 months in considering your score.In the end, you should always consider how each credit device will benefit you in the long term. If it doesn't raise your score or provide a measurable benefit beyond access to a little more money, you're better off passing it by.
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