How to know if you’ve picked the wrong credit card (and what to do about it)
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Getting a new credit card is the start of a new relationship. You searched long and hard for a new card, did your research, and found one that came with some nice perks, like a low interest rate, cash back, bonus points or a generous credit limit. It may even seem like a match made in credit heaven.
Now that some time has passed, something just feels a bit unfulfilling, but you’re not sure what it could be. Your balance is paid off and your spending is in check, so it’s not about credit card debt. Your credit score is doing well. But you’re feeling restless.
You may have chosen the wrong card thinking it was the right decision -- or maybe you’ve been with the same card for years, and it used to serve you well, but now it no longer fits your needs.
A big challenge for any relationship is recognizing if it’s contributing to or detracting from your happiness, and making the difficult decision to either stay the course or call it quits. If you’ve begun to wonder if you and your credit card are mismatched, here’s how to decide if it’s time to part ways with your plastic:
A secured credit card -- a credit-building card where your own cash security deposit acts as your credit limit -- may have been the ideal choice when you had zero credit history. But if it’s still the only card you’re using now that your credit has improved, it’s time to move on. You can qualify for better cards with rewards and other benefits for people with very good to excellent credit, and a secured card can’t give you that. You’re selling yourself short by continuing to make it your sole source of credit.
One of the most obvious signs of credit incompatibility is earning rewards that you’ll never need or hardly use. If your card focuses its cash back on gas and grocery purchases, but you don’t drive or shop at the supermarket, you’re not getting the most out of your rewards. And that low balance transfer fee is useless if you never make a balance transfer.
You may also have a card that once aligned with your lifestyle, but no longer does. If you don’t travel as much as you used to but you’ve been collecting airline miles, your card may not be right for you. It’s not practical to have a card where you’ll earn and redeem rewards only infrequently. Using the card from time to time isn’t necessarily wrong, since it still helps your credit and keeps your utilization low. But ask yourself: Is it just another way of minimizing, instead of maximizing, the rewards you really deserve?
Many credit cards come with special bonus offers as an incentive for people to apply and open an account. They could be anything from introductory zero-percent interest or the chance to earn cash back or travel points after reaching a certain spending threshold.
These are great perks, but if these short-term benefits are the only reason you applied for your credit card, you might be at a loss once those offers have expired. If the card offers no further benefits that work for you once the interest-free or rewards deadline passes, it might not be the right credit card in the long run. Furthermore, if the card carries prohibitively high monthly or annual fees, it could be costing you if there aren’t any rewards there to redeem.
You get what you pay for, even with credit cards -- and generally speaking, cards with the most robust benefits and features carry the highest fees. Case in point: pay the $450 and $550 annual fees for the Chase Sapphire Reserve and American Express Platinum cards, and first-class travel and dining is yours pretty much around the globe.
But it can be a colossal waste of money when you can’t afford the fee and you’re teetering on the brink of debt just to have the card in your wallet -- and that’s without charging anything to it. When the premium options aren’t worth the price of keeping your account open, it may be time to rethink your credit options. The right credit card may be the one with a more manageable fee, or none at all.
Introductory periods aside, low interest on a credit card almost seems like a bit of a oxymoron: as of May 2017, the average variable credit card APR is 16.46 percent, and penalty interest rates hover around 30 percent.
These rates will mean nothing to you if you pay off your credit card balance each month by the due date. If you tend to be the type who carries a balance from month to month, penalty rates will have a big impact on your finances. And if your card has an inordinately high interest rate, even a small credit card bill can cost you bigtime.
Rather than continue using a credit card that costs you money rather than saves it, follow some of these tips to pick a better credit card.
Don’t cancel your credit card for a new one. There’s no real way around it: closing a credit card can hurt your credit score. Even if you’re replacing one card by opening another, your credit score can still take a hit, since the card you’re deleting lowers your credit mix, a key factor that goes into determining your credit score. Your best option is to apply for the card you want, keep the old account open and use it infrequently. Canceling your account is rarely advisable unless the yearly fee is too much to manage, your credit history is minimal, or you’ve had the card for only a few weeks. If you must cancel a card outright, make sure it’s for one with a signup bonus or rewards/cash back program that compensates for the temporary impact to your credit score.
Read the fine print. How many mistakes do we make in money and life by failing to know the details? Applying for and opening a new credit card without first looking over the terms and conditions is no different than signing off on a loan oblivious to your interest rate or repayment plan. If the card doesn’t offer the rewards you want, pass. If the bonus offer is the only appeal of the card, look elsewhere. If fees, APRs and/or other hidden charges are too expensive, or if your credit score is too low to qualify, don’t go to the trouble of applying. Too many credit applications can also hurt your credit score, a price to pay to find a card you don’t want or need. By narrowing down your choices, you’ll find the best card tailored for you and your credit.
Work with your provider. Rather than canceling a card and writing off credit forever, contact your card issuer to see if you can strike a deal. For loyal, longtime customers, they may be willing to modify some of the terms of your card if it means retaining you as a cardholder -- a lower interest rate, for example, or transferring miles or points from one card to another (if your card is co-branded with a hotel chain or airline). If that’s not possible, see if you can switch to another card in your provider’s lineup without a hard check of your credit that can negatively affect your score.
Practice better credit behavior. Making the most of your credit health has less to do with the card you’re using than it does how you’re using the card. Don’t throw responsible credit behavior to the wind just because you have a card you no longer want. Keep your spending to 30 percent of your credit limit. Never max out your card. Pay off your total balance each month. Avoid debt. And as you search for the right credit card, it’ll become clear that your relationship with credit is more important than your credit card you have.
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