Editorial Policy

The best (and worst) reason to get credit cards

Eva Norlyk Smith Ph.D.

February 4, 2014

QHi Eva,

I am getting offers for credit cards in the mail. I already have one credit card that has a balance of $2,000 and a limit of $6,000. But it seems as though all of these companies want to give me their cards. I'd like to get one more card, possibly two… but do I apply for a bunch at once, or apply one at a time? What if one company sees that I've been rejected by another? — Viv

ADear Viv,

It's always flattering to be courted, even if it's just credit card companies thinking you're the hottest gal on the block.

But, you wouldn't start a relationship just because someone asks you out on a date, right? Similarly, you don't want to get a credit card just because a card offer lands in your mailbox.Ask Eva

Currently, you are using more than 30 percent of your credit limit on your existing card, which isn't optimum for your credit rating. Once you have that balance down to zero is when I can safely recommend you apply for a new card.

You're right to be concerned about the timing of your applications. Each time you apply for a credit card, the issuer pulls your credit. Called a “hard pull,” each credit check dings your credit score a bit. That's because credit scoring models take multiple card applications in a short period of time as an indication that you're short on money.

This damage will be short lived — but even slight score damage is bad news if you need to get a loan with the best terms. So, rather than applying for a bunch of cards at once, lower the probability of rejection.

Pull your credit scores (about $20 from each of the three major credit bureaus at myFICO.com). You can also use a free score estimator to get an approximation. You can usually find a card's credit requirements on its application page. If your score is above 750, you're in the “excellent” range. Between 700 and 750? You're in the “good” range. Below 700? Your credit is “fair” to “poor.”

Find a card that falls within the range of your credit score. Once you apply and are approved for the card, focus on keeping balances low and paying bills on time. Six months later, you can apply for another.

You don't say why exactly you want more credit cards. But know this: There are good and bad reasons to apply for a credit card.

Bad reason: Just because I can. You're getting credit card offers because you have good credit. That means you have been managing the credit card you have well by paying your bills on time and keeping a relatively low balance on your card.

Unfortunately, as you suspect, those suitors will quickly turn a cold shoulder if your credit score goes down. So, before you get cards just because you can, make sure you can handle the increased credit line responsibly.

Worse reason: I like the extra cash. Credit cards are not free money. It's easy and quick to get into debt; it's hard and tedious to get out of it. Few people realize that until they experience the effort it takes to get out of debt.

So, before you get new cards, I again recommend you pay down on your existing $2,000 credit card debt. That way, you can experience the work involved.

Determine how much you can pay extra  toward your card balance each month. Use this credit card calculator to determine how long it will take to pay it off at that rate. Also, check the interest charges. If you carry a balance on new cards,  you'll pay that much more interest.

Worst reason: I need the extra cash. Many people jump on the easy credit bandwagon, eventually waking up in over their heads. And just when they need credit the most, their credit score drops, and all sources of credit dry up.

At that point, there are only two choices, and neither is appealing. They can walk away from the debt, ruining their credit score and any chance of enjoying the benefits of good credit. Or, they can pay off the debt slowly, paying the original credit card charges many times over because of the considerable interest and fees that will accumulate.

Good reason: Credit cards are useful for large expenses. Ideally, save ahead of time for those larger expenses, whether it's a TV, furniture or game system. However, when that's not possible, credit cards offer access to an easy, short-term loan to fund larger planned purchases.

Better reason: Credit cards are a necessary convenience. Let's face it, It's hard to get by without a credit card. Renting a car and booking a hotel room can be trickier with a debit card, so if you travel frequently, a credit card is usually the way to go.

Best reason: Credit cards help build your credit score. Wisely managing one or several credit cards is among the best ways to build your credit score over time. Having great credit will give you many benefits over time: You can get low rates on car loans, and it improves your approval chances to qualify for a low-interest mortgage.

So, quick recap: Ask yourself why you want to get another credit card. If it's to build credit or to responsibly purchase big-ticket items, it may be the right choice for you. If it is simply to dig yourself into another a debt hole, I would advise against it.

Got a question for Eva? Send her an email.