Should You Apply For A Credit Card?

By Danielle Bilbruck

Sometimes the world of personal finance feels like one big, conflicting question mark. Some professionals say that credit is good: if you manage it well, it can help you in acquiring student loans or home loans or lines of credit when you really need it. Some professionals say credit is bad: live cash-only and you’ll never be tempted to spend money you don’t have to then owe back to the bank. So which is it? Should you get a credit card (or another one) or not?

Let’s break it down: the good reasons to open a credit card, the not-so-good reasons, and the things you absolutely need to know, no matter which side you fall on:

Good Reasons to Open A Credit Card

  1. To establish a line of credit. If you’re going to need loans for school or a home or a large purchase, you will need credit in your name to feasibly get the amount of money and payment plan you need. If you believe you can handle a credit card well, charging to it and paying it off each month, then it’s a good thing to open that line of credit, which will open up a recorded history of your fiscal responsibility.
  2. To improve your credit. Theoretically, if you also need to continue improving your credit, you could also open a credit card account. Note, however, that this is not the only way to improve your credit. If you already have credit cards or other lines of credit open, your best bet is to pay on time, to pay more than the minimum (or better yet, pay it off each month), and to let the accounts accrue longevity. But if you only have one credit account, an additional one could be a good way to continue improving your score, provided your current credit account is already in good standing.
  3. In case of emergency. It’s never a bad idea to have a completely zero-balance account available to use if you run up against an unexpected and large expense. The key to this kind of credit account, however, is that you keep it at zero-balance. The card won’t do you much good in an emergency if there is barely any credit limit to spend! The downside to keeping a card at a constant zero-balance, though, is that you won’t be spending and paying off like you might with a different credit situation…this one won’t really help improve your credit much, but it won’t hurt it, either.
  4. Protected purchases. With credit cards, your purchases are backed and protected, so you know that you won’t have to pay for charges to your account that are fraudulent or mistaken. With debit cards, those charges typically remain posted to your account until the claim is resolved; not so with credit card accounts.
  5. Travel convenience. In travel situations, know that hotels and car rental outlets often require a credit card to hold for a deposit. Most of these types of companies will not take a debit card for such a deposit. Additionally, the convenience of having a credit card when traveling means that you won’t have to carry large amounts of cash.

Not-So-Good Reasons to Open A Credit Card

  1. Because your credit limits are maxed out with your other cards. Instead of opening yet another card and running the risk of even more consumer debt, put together a practical budget you can stick to. Then you can begin to chip away at your credit card debt and feel comfortable with your bills each month.
  2. If you have bad impulse control. If you have a tendency to charge to plastic on a whim, or you’re not paying at least the minimum amount required each month, on time, it would be a bad idea to put yourself in a situation to rack up credit card debt and/or ruin your credit score.
  3. Because it’s a store you shop at a lot. While rewards can be an enticing reason for some to apply for a credit card, especially if the rewards are with a brand they normally purchase from, it’s still not a great idea to open up a credit card. Consider that you may end up spending more money in order to get the rewards, effectively canceling out any real fiscal benefits the rewards provided in the first place.

Things to Know No Matter What

  1. Applying for a credit card means a credit inquiry on your score. Those inquiries could be hard or soft inquiries, depending on the company: hard inquiries mean that they will affect your credit score, soft inquiries do not.
  2. Opening a new credit account affects the age of your credit. The age of your lines of credit affects your score in a big way; the longer you have a credit account open, the more it lends credibility to your ability to handle lines of credit. This is why you should never close an account, even if it’s paid off and you don’t want to use it anymore! There are two variables to credit age, however: the age of your oldest account and the average age of all your accounts. Opening a new account will affect the second variable, so know that going in.
  3. Make sure your payments are always on time. Missed payments are one of the biggest hits to your score, so making sure your payments are on time is critical to keeping your credit score stable and positive.
  4. Don’t use it all. “Maxed out” doesn’t mean that there’s no credit limit left on your card…it means that you’ve used more than 85% of your available credit. You could be maxed out and still have credit available! Utilizing too much of your credit and carrying that large balance month over month can hurt your credit score as well.

Credit is not an inherent evil…as a matter of fact, it can be beneficial and necessary to your financial goals. But like any tool, it can become deadly in the hands of the user. Make your credit cards work for you and not against you!