11 Questions to Ask Before Signing Up for a New Credit Card
Many people view revolving credit as a necessary, but few consider the seriousness of having credit cards. A credit card has the potential to be a long-term financial decision, which is why you should meticulously choose when applying for new credit accounts. Here are 11 questions you should ask yourself before hitting the apply button for a new credit card.
11 Questions to Ask Yourself Before Getting a New Credit Card
1. Do I need this new credit card?
Many people immediately flock to credit cards when establishing themselves as responsible consumers. There are, however, other ways to prove to lenders that you pay your bills on time. A car loan carries a lot of weight in the credit sector as do personal loans. While it’s nice to have at least one credit card, you do not need more than four credit cards to show lenders that you are financially savvy.
2. What is the interest rate of the new credit card?
Understanding the hidden costs of credit cards is paramount to avoiding mounds of debt. Many consumers spend liberally with credit cards during the holidays only to find that interest rates turn a $25 purchase into $40 or more. It is always a good idea to pay off monthly bills to avoid interest. You should, however, know how much more you would pay in the instance of you being unable to pay everything upfront. If you pay your credit card balance in full each month, the credit card interest rate does not matter. If you are a revolver look for a credit card that offers a low fixed interest rate or apr.
3. Will I qualify for a new credit card?
Every credit application incurs an inquiry in your report. There is no point in you applying for a new credit card that you have no chance of attaining. Make sure, then, that your credit score and income is high enough for approval before pursuing a new line of credit. You should also ensure that the credit lines that you currently have do not exceed 20 percent of your monthly income. Many lenders deny borrowers who try to take on too much debt and have high credit utilization.
4. Will this new credit card meet my needs?
Those trying to establish themselves as responsible consumers are usually willing to accept any form of revolving credit. Borrowers with good payment history may search for more in a credit card. You may consider an account that offers better reward benefits such as flight rewards and the cash back offers if you have established credit.
5. Are there better credit options?
You should not accept the first offer that comes your way even if you are new to the credit market. Instead, you should search around for better options and compare the possibilities on the table. Remember that, for the most part, revolving credit is a long-term decision. You should plan to maintain credit accounts for more than five years. Age of accounts is a factor in the credit scoring system.
6. What will my new credit line look like?
Your line of credit is heavily dependent on your income. There are instances where borrowers have presented excellent credit only to face denial of a higher credit limit because of limited income sources. You should make sure that your monthly paychecks are enough to cover your new debt at least three times over if you want approval for a higher credit line.
7. How do your rank in creditworthiness to be approved for a new line of credit?
The average lender keeps track of a borrower’s creditworthiness by assessing timeliness in payments and spending habits. Customers who pay late more than three times in a calendar may see a decrease in their chances for an approval of a new line of credit. Borrowers who maintain a high balance on their credit cards may also suffer a denied credit card application. You should ask your potential creditors about how they determine a person’s creditworthiness after granting a revolving new line of credit. If you have poor credit consider one of these three top secured credit cards recommended by the Credit Fast team.
8. Should I cosign for a new credit card account?
Cosigning for revolving credit is much different than guaranteeing a car loan. Your consent to maintain a credit card account has no expiration date and very few limitations. A lender can demand payment from you more than ten years after your initial cosign agreement. You should, therefore, be intentional about removing yourself of financial obligation when the person that you are cosigning for is capable of standing on his own two feet.
9. How will this lender protect me against credit card fraud?
Credit card fraud affects more than 40 percent of consumers every year. Protecting your credit data is a necessity in this digital age where gaining access to personal information is so easy. Your prospective lender should have measures in place that safeguard you in the instance of a thief gaining access to your account number and making purchases. A company that refuses to bear some of the burdens that come with identity theft is not worth having in your portfolio of credit trade lines.
Learn which card companies offer the best fraud protection. Many lenders provide constant monitoring of your credit report free of charge. Such observance ensures intrusive attempts are detected before they significantly impact your score.
10. What happens if I fall behind in payments with my new credit card?
No one plans to miss bill payments, but sometimes circumstances lead to financial crisis. You should search review websites to learn how your potential lender treated customers when they breached the terms of their agreement. Banks who threatened and harassed past borrowers should be avoided. If they were hostile with past clients, then they will indeed show aggression in your case of delinquency. When you call, good credit card companies will help you manage your credit situation. Credit card companies with payment options for the financially troubled are ideal. Such credit lenders give you the opportunity to catch up on past amounts owed and get back on track towards maintaining good credit.
11. Is the timing right to get a new credit card?
Many consumers apply for a new credit card because they are ready for more financial responsibilities. Few borrowers, however, consider if the overall timing is right. A booming economy in which the majority receive approval for new credit offers is the best time to extend your revolving credit portfolio. Applying for credit during a recession is when you will likely receive a denial to your request. It might be a time when new credit is a bad idea. Trying to use a credit card to manage finances could lead to accumulating credit card debt.
Obtaining a new credit card is not only a matter of deciding when you are ready but also a choice dependent on economic trends. The timing for both aspects of the equation must be right to get the type of account that you desire and more importantly need.
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