It may be a smart time to apply for a new credit card. Many card companies are meeting pent-up demand by loosening requirements and offering extra perks. We asked financial experts on what you need to consider before applying.
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With the U.S. economy slowly returning to pre-pandemic levels, Americans are going out and spending. A lot. And they’re increasingly borrowing money to do it.
Consumer demand for loans, including auto loans, personal loans, and credit cards, is up 39% year over year, the Wall Street Journal reported.
In response, lenders are loosening their requirements to attract new customers. The same report found that lenders issued more general-purpose credit cards in March 2021 than any other March on record.
Should you take advantage of looser credit requirements and get a credit card? Here’s what the experts say.
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A poor job market and shaky economy in the first half of 2020 prompted credit card companies to tighten their lending criteria, says Ted Rossman, senior industry analyst at CreditCards.com. Now that the economy is on the rise and the job market is hot, lenders feel more comfortable to lend, many even offering extra incentives to entice consumers.
“Credit cards offer lots of great perks, like cash back, points, fraud protection, and more,” says Jay Karamourtopoulos, certified financial planner at FP Alpha.
Can you have too many credit cards? The average consumer has around four credit cards, says Rossman, though it’s really up to you, your personal financial situation, and how many cards you can reasonably keep track of and pay off each month.
Another important reason to get a credit card is if you’re frequently going over your credit utilization ratio, or the amount of credit you have at a given time, says Michelle Buonincontri, a certified financial planner. You shouldn’t open another credit card if you’re unable to pay off your debt — but if you can responsibly manage increased spending, it may be a good idea to get another card to keep your utilization ratios low.
Applying for a credit card is relatively easy — it takes just a few clicks. But it helps to be strategic. One of the biggest mistakes you can make is applying to multiple cards at once, says Buonincontri. You might think applying for a bunch of cards increases your chances of at least one of the companies approving your request. But it can hurt you.
Buonincontri says every credit card application you make triggers a hard credit inquiry, which may cause your credit score to take a slight hit, typically less than five points. If you apply for multiple cards, those hits add up. Rossman recommends keeping credit card inquiries below five in a two-year span. Check your credit score before applying to make sure it’s in a solid place. (We have a guide to help you get there.)
If you feel like you’re in a financially good place to apply, it’s time to do some research.
“I think it's important for people to understand their cash flow and budget in order to decide on what card excites them and brings them value and joy,” says Karamourtopoulos. “Pairing a credit card and its rewards with your spending and goals is smart.”
Avoid the initial temptation of the sign-up bonus when weighing different cards. It’s a great perk, but it’s a one-time deal that doesn’t offer much benefit in the long run. A card that doesn’t offer a bonus but has better points or cash back rewards may work better for your needs. Rossman encourages you to ask yourself:
What am I looking to get out of this card?
What am I planning to use it for?
What are my spending habits and lifestyle like?
How often will I use this card?
What are my other cards like? How will this new card fit in?
If you travel frequently, you may want to prioritize a credit card with travel points over one that offers cash back. On the other hand, if you’re planning on using your credit card for necessities like gas and groceries, a card with cash back rewards focused on those spending categories makes more sense for you.
Pay attention to other features outside rewards, like credit limit and interest rates. Above all else, make sure you can handle the added financial responsibility of another credit card. If you don’t think you can pay off your balance in full each month, avoid applying.
“All the rewards in the world won’t make up for the fact that you’re paying 15% or more in interest,” says Rossman.
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