You’ve decided you’re ready to take the next step in your relationship with your finances: you’re going to apply for a credit card.
Whether this is your very first credit card, your 10th, or you’re just now over that terrible break up you had with that credit card from your 20s and finally ready to put yourself out there again, it’s important to lay out some ground rules for yourself. These will ensure that your new plastic relationship is happy, healthy, and highly rated by the three major credit bureaus.
These are top five common mistakes people make when applying for a new credit card. Avoid them, and you’re bound to end up with a keeper.
- Applying for a card that doesn’t fit your needs
There are many reasons to open a new credit card. The credit card that’s best for you will depend largely on your reason for opening one.
One of the biggest mistakes people make when they decide they want a credit card is to simply apply for the first one they come across. It’s like dating — you wouldn’t want to marry the first person you go on a date with simply because they were first, would you?
However, every card comes with its own unique characteristics, so you really want to shop around and consider your needs.
Do you travel a lot? It would be a waste to get a credit card that doesn’t offer great travel rewards, especially when there are so many good ones out there.
Is your goal to build or rebuild your credit score? There are cards out there specifically designed for building credit, such as secured credit cards.
Maybe you have a lot of debt and you’re opening a credit card to consolidate your debt and finally pay it all off. There are balance transfer credit cards that offer great introductory interest rates or no balance transfer fees. There are even cards that offer a 0% interest rate on balance transfers for six months, a year, or more.
If you have a lot of business expenses, you may be able to qualify for a business credit card. Remember, you don’t have to own a business to get one. These cards often come with great perks that their non-business counterparts don’t.
If you’re just looking for a card with a low-interest rate and aren’t concerned with rewards or special offers, you might want to consider looking into a credit union.
This is why it’s crucial to get a credit card that is specifically designed for your financial goals.
2. Applying for a card that doesn’t fit your spending habits
Just as it’s important to analyze your goals, you should also consider your spending habits when applying for a credit card. Be realistic.
Are you planning on making some large purchases? Do you spend a lot each month? Make sure to apply for a card that has a reputation for offering higher credit limits.
When looking at your spending habits, figuring out where most of your money goes can also maximize your credit card rewards. If you spend a lot of money on gas each month, get a card that offers high rewards on gas spending. If you eat out a lot, it might make more sense to get one that gives extra points for spending on dining.
If you spend a lot of money abroad, you will definitely want to look for a card that has no international transaction fees. You may also want to consider a card with some travel or trip insurance included, as well as relevant travel perks and rewards.
3. Applying for a card that’s not a good fit for your credit score
Far too often, people apply for the card of their dreams without considering whether or not they even qualify. Remember, each credit card application is considered a pull on your credit report and thus lowers your score temporarily…even if you aren’t approved.
Because of that, you’ll want to carefully and realistically consider whether you’ll be approved or not. Read up on the credit card you want to figure out what credit range they typically accept, and then compare that to your score.
As often as people apply for credit cards they don’t qualify for, many people also apply for cards with high-interest rates or mediocre perks when they could qualify for something much better. If your credit score is above 750, you should be very discerning when applying for a credit card, because you could qualify for cards with some of the best rewards or lowest interest rates.
4. Applying for too many cards at once
Again, every credit card application lowers your credit score temporarily. Some people apply for 10 cards in one day in the hopes that they’ll be approved for one; this is a horrible tactic.
Similarly, it’s not a wise idea to apply for a credit card if you’ve already applied for one in the last 6 months. It’s best to wait and space them out to avoid weighing your score down. In fact, many credit card companies will automatically deny you if they see you’ve opened many cards over a short period of time.
5. Applying before you pay the bills
You should always pay all your credit card bills before you fill out a credit card application. Ideally, you should pay off all of your debt before applying, but if that isn’t feasible, pay off as much as possible.
A major factor of consideration when banks look at your credit report is your debt to credit ratio. This is one of the most heavily weighted parts of your credit score. The more debt you have, or the higher your credit usage rate, the lower your score.
