Home > Credit Cards > 9 Questions to Ask Before Adding a Credit Card

Comments 1 Comment

Lucrative sign-up bonuses and competitive rewards programs have certainly reinvigorated consumer interest in credit cards. But these incentives shouldn’t be the only reason you elect to fatten your wallet, especially if you’re prone to overspending.

Instead, ask yourself these nine questions before applying for a new credit card to determine if it will ultimately help or hurt your finances.

1. What is my current financial status?

The first step to figuring out if it’s the right time to take on some new plastic is to assess the current state of your finances. You want to make sure you have enough cash flow to pay off new debts, but remember to be forward-looking.

“Ask ‘is my employment status secure?'” Deatra Riley, financial education manager for non-profit credit counseling organization CredAbility, says. You also should make sure you have both a short-term and long-term plan for saving in place before you take on a payment method that could potentially affect your ability to put money into a bank account.

2. How much do I already owe?

You may instinctively review the balances you’re carrying on existing credit cards before adding new one. However, it’s just as important to make sure you factor in other debts, like home, auto or student loans, before you fill out the application.

“All of those other debts could be the big elephant in the room,” says Bruce McClary, Director of Media Relations for ClearPoint Credit Counseling Solutions, since existing financial obligations can ultimately affect your ability to pay off balances on a new card. Or, conversely, big balances can affect your ability to make monthly payments on your loan. Both of these missteps can do damage to your credit score.

3. Will I be able to pay more than the minimum each month?

Similarly, you shouldn’t be applying for a credit card as a means to make purchases while you’re paying off big bills, since the interest on revolving balances will only increase your debt load.

“Interest rates are higher than we’ve seen in the past,” Riley says. If you carry a balance, you’re going to (literally) pay for it. As such, prospective credit cards applicants probably shouldn’t follow through with the application process if they can only make minimum payments each month. Instead, McClary suggests focusing on your budget in an attempt to find additional savings that can be put towards purchases.

4. Is my credit score in good shape?

Knowing the current status of your credit score is a crucial part of the application process since poor credit scores can cause you to get turned down by a lender. Mediocre scores may earn you the card, but the annual percentage rate (APR) may be sky-high, the credit limit may be too low and the rewards program is probably non-existent.

“A stinky credit score gives you stinky credit card terms,” McClary says. If yours is in rough shape, you may want to hold off on adding some new plastic. Instead, focus on paying down balances and establishing a good payment history on existing loans in an attempt to bolster your score. Once it improves, you’ll be able to qualify for a card with much better terms and conditions.

5. What guidelines does the issuer use in their underwriting?

In order to avoid being turned down, you may want to get a better sense for what an issuer looks at before you apply for a particular product. While the decline itself won’t ding your credit score, the inquiries associated with applying for multiple credit cards (in an effort to actually score one) can add up.

“Do your homework before applying,” Riley says. Most issuers will give you a general sense of whether “good” or “excellent” credit is needed to qualify on their websites or in advertisements. You can also often get a better idea of what their underwriting guidelines are by calling them directly.

6. How many credit cards do I already have?

Multiple inquiries will also have an impact on your credit score when you’re approved for a new card, which is one of the reasons why it’s important to not go overboard and apply for every single sign-on bonus you see. You could also inadvertently lose points for not having an ideal number of credit cards, an aspect of your credit profile that does play a role in FICO’s scoring calculations.

“Opening accounts can actually send your score in the wrong direction,” McClary says. “If you already have five, six, seven or eight credit cards, why on earth do you need another?”

7. How much credit do I need?

You may also want to ask an issuer what credit limit tiers are associated with a particular product (and what the eligibility requirements for each are) since these limits play an important role in credit scoring calculations. Bumping up against a credit limit on both a single card and all of your cards collectively will have negative impact your credit-to-debt utilization ratio. This means cards with very low credit limits can cause problems when you go to charge a big purchase. Cards with exorbitant limits can be equally tricky if they entice you to overspend.

To figure out whether a new card’s limits will best suit your current needs, “look at your credit cards and see what the current percentage you are using,” Riley says. Your ultimate goal is to add a card that will keep your credit utilization under 25% of what is available to you.

8. Why do I want a new card?

This question will certainly reinforce whether your intentions for getting a new card are good. (Hint: If the answer is, “I want to go on a shopping spree,” you should probably skip the application.) It will also help you pinpoint what type of credit card you should ultimately apply for since different card categories are designed to suit specific needs.

For example, if you’re looking to leverage your great credit to get something back on your purchases, you will want to opt for an awesome rewards card, McClary says. On the other hand, if you want a line of credit that can be used in an emergency, you will want to opt for a low-interest credit card. (Rewards cards carry higher APRs to subsidize their points programs.) And, if you’re looking to pay down a high-balance on an existing credit card, you will want to find a card with a great balance transfer offer.

9. What fees are associated with the card?

Annual percentage rates aren’t the only charges associated with a credit card that you need to worry about. Many products also carry annual fees that may put them out of your price range. Some rewards cards, for instance, carry fees of $100 or more as another way to subsidize lucrative points programs that may only prove worthwhile to big spenders.

You’ll also want to read through the terms and conditions associated with credit card to make sure you are aware of other charges that can be incurred, Riley says. For instance, there are often high fees associated with cash advances, late payments, foreign transactions or balance transfers that you’ll want to assess before applying.

[Free Resource: Check your credit score and report card for free before applying for a credit card]

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team