If you're like most people, you probably get at least a few credit card offers in the mail each month. Sometimes, these offers can be enticing, especially when they promise instant approval or a high credit limit off the bat.
But signing up for a credit card isn't a decision that should be made on impulse. Before you take on a new credit card, make sure you do these five things first:
Evaluate your motives.
The first thing you’ll want to do before applying for a credit card is ask yourself, “Why do I want this card?” and then decide if your motives are wise. Applying for a credit card to build your credit history is one thing; opening up a card to fund a vacation or shopping spree you won’t be able to afford otherwise is another.
Many serious debt problems, including bankruptcy, are the result of too much debt. This often starts with credit card use. If you’re opening a credit card to make a big purchase or take advantage of a promotion, make sure you pay off the balance in full by the time the promotional period ends.
Check your credit reports.
Before you send in your application, check all three of your credit reports. There are several reasons this is important. You’ll get the most competitive interest rate on your new card if your credit score is good. If you have late payments or accounts in collections, hold off on getting a new credit card until you can improve your credit.
It’s also important to check your credit report for errors. According to a report by the FTC, at least 25% of all credit reports contain at least one error. When you pull your report, look for old accounts that are still being reported negatively, duplicate negative accounts, or accounts that don’t belong to you.
You can order your credit report from the three credit reporting agencies for free at www.annualcreditreport.com.
Check your wallet.
If your wallet is already overflowing with credit cards, you may want to think twice about opening up another one. This is especially true if you carry balances on each of your cards. Too much debt can lower your credit score, and carrying high balances on multiple cards could lead to serious debt trouble.
On the other hand, getting an additional credit card isn’t always a bad thing. If you already have a credit card (or two), consider transferring the balance to a card that offers 0% interest on balance transfers. You can then pay down the balance during the promotional period, which could save you a bundle in interest.
Do your research.
Credit card companies spend a fortune each year on advertising to try and get your attention. But choosing a credit card on a whim or based on a flyer in the mail is probably not the best move. If you’re in the market for a credit card, do a little research for different types of cards, then choose one that best suits your needs. For example, if you rarely travel, an airline rewards card wouldn’t make much sense for you.
Read the fine print.
Before signing up for any credit card, make sure you know exactly what the terms and conditions are by reading the disclosures and the contract. Things to look for include fees, including late fees or annual fees; interest rates and interest rates after promotional periods; cash advance policies; and so forth. Knowing exactly what you’re agreeing to will save you from any unpleasant surprises down the road.
Signing up for a new credit card is a big decision that can affect your finances for years. Follow these tips to make sure you’re ready for a new card.