5 good reasons to consider getting a new credit card
By Dawn Papandrea
March 2, 2016
Not sure if you need a credit card, or should add another one to your wallet? Here are five reasons why it could be a smart move … assuming you plan to use that new plastic responsibly, that is.
1. To earn cash or rewards points
If you pay your balance in full by the due date every month, you should be earning rewards, because — well, why not?
The key is to find the right card to maximize your spending style, says Diane Moogalian, vice president of operations of Equifax Personal Solutions. In other words, if you’re not a frequent traveler, an airline miles card won’t do you much good, but a cash back card probably will.
Either way, be sure to read the fine print so you can choose the best rewards card program for you. And if it’s an airline miles card, check how easy or difficult it is to redeem those mileage points.
“If you find the rewards program difficult to understand or you cannot find an explanation online, then call the issuer and ask questions before you apply for the card,” says Moogalian.
Extra credit tip: Rewards cards often have higher interest rates, so carrying a balance will likely negate any miles, points or cash back you thought you were earning, says Albie DiBenedetto, marketing and education supervisor for American Consumer Credit Counseling (ACCC). “There’s no point in cash back if you are paying that amount multiple times over in interest,” he adds.
“If you’re dealing with cash all the time, you won’t have the added insurance that cards have. Your money won’t be protected should something go wrong.”
— Albie DiBenedetto,
2. For consumer protection
Whether you’re booking a trip or buying a large household appliance, paying cash could backfire, says DiBenedetto. “If you’re dealing with cash all the time, you won’t have the added insurance that cards have. Your money won’t be protected should something go wrong,” he says.
Some card perks extend warranties, include purchase protection in case an item arrives damaged or add price protection if the price falls after you bought that new TV.
In addition, a credit card is a more secure way to conduct transactions when compared to debit cards, says Katie Ross, education and development manager for ACCC. That’s because should fraud take place, there is less liability with a credit card; with debit, your checking account funds could be compromised or tied up.
Extra credit tip: Read the credit card’s terms of agreement to see exactly what type of protection your credit card provides, says Moogalian.
3. To re-establish credit after a rough patch
Working your way back up to good credit takes time and diligence, but there are credit products designed to help consumers do that. What is good credit? FICO scores range from 300 to 850, with good credit ranging from 700 to 749.
“If you have a low credit score, you may still be able to qualify for a secured card, which may help you re-establish healthy credit behavior,” says Moogalian. With a secured card, you must leave a deposit in the amount of the credit line as collateral.
“If you have a low credit score, you may still be able to qualify for a secured card, which may help you re-establish healthy credit behavior.”
— Diane Moogalian,
Equifax Personal Solutions
After making on-time payments for six months to one year, you may be able to qualify for a regular unsecured card, she says; for some consumers, it could take a bit longer.
Extra credit tip: If you choose a secured card, make sure you confirm that your credit activity will be reported to all three national credit reporting agencies (Experian, Equifax and TransUnion), says Moogalian. You want to be sure that your positive activity is being counted in your favor.
4. If you don’t have any credit at all
“A credit card is an important element in establishing and improving your credit history and score,” says Ross. In other words, you have to prove you can use credit to access more of it.
Whether you’re a young adult, or a stay-at-home spouse who doesn’t have any accounts in your own name, getting a credit card is a good idea should you ever want or need to qualify for a loan in the future.
Not only will responsibly handling a credit card show a future lender that you’re creditworthy, but it can qualify you for better terms. “The responsible use of credit can reduce the interest you pay on your mortgage or auto loan. Over a longer period of time, you could save thousands of dollars,” says Ross.
The best place to start looking for a mortgage or auto loan is with a local bank or credit union with whom you have an established relationship.
Extra credit tip: If you have never had a credit card, but are considering opening a new account in order to establish your credit history, here is a three-step plan to start on the right foot: Don’t charge more than you can repay at the end of the month, pay your bills on time and in full. If you do carry a balance, keep it lower than 30 percent of your available credit line. And check your credit report from each of the three credit bureaus at least once per year (via annualcreditreport.com).
5. To transfer a high-interest balance
If you’re a heavy credit user, you probably get inundated with balance transfer offers all the time. Before you put them in the shredder, consider if a balance transfer card might be a smart move for you.
“With a balance transfer, you can move your high interest credit card debt to a credit card with a lower interest rate,” says Moogalian. Your goal should be to pay off the full balance during the new card’s low or 0 percent introductory interest rate period, before the regular interest rate begins.
There’s usually also a balance transfer fee of 3 to 5 percent of the transferred amount, so don’t forget to factor that into your number-crunching.
Extra credit tip: There likely are strict rules about missed payments during the balance transfer card’s promotional period, says Ross, so be sure to read the fine print. “If you are late or miss a payment, that low rate could skyrocket and throw off your whole plan.” And whatever you do, don’t start adding to the balance of the old card while paying off the balance on the new card.
No matter what your reason, before getting a credit card, consider the big picture of your financial situation, says Moogalian. If after doing so you think that you can honor the commitments and responsibilities that come with a new line of credit, and also maximize its benefits, go for it.