5 Vital Questions to Ask Before Applying for a Credit Card
Applying for a credit card may not be as major a decision as applying for a mortgage or auto loan, but the card you end up with could either cost or save you hundreds of dollars in interest and rewards, so it's worth spending some time researching and thinking about what card is right for you. Ask yourself these five questions before submitting that credit card application:
1. Is this card right for me?
There are hundreds of different credit cards available to consumers. Take advantage of the variety, and look for one that will compliment your spending habits and needs. For example, if you're a world traveler, you may want to apply for a card that will help you rack up bonus miles and score free flights. On the other hand, if you're a stay-at-home parent, a card that offers cash back on gas and groceries may be perfect for you. Don't just settle for any card that sends you an offer in the mail -- question whether you'll be able to take advantage of the perks and whether there's a better card out there for you.
Keep in mind: Unfortunately, just because you find a card you like, it doesn't mean you'll be approved for it. Better cards often have stricter approval requirements, and applying for too many cards doesn't look good to potential lenders. This leads us to the next question to consider ...
2. Am I likely to be approved?
The best credit cards are typically reserved for consumers with the highest credit scores. Therefore, don't just stop your search when you find a card you want. Applying for a card typically results in a hard inquiry that can lower your score, so it's best to be prepared and know where your credit score stands before submitting your application.
Keep in mind: Even if you know one of your credit scores, the score you received may not match the score the potential lender will pull to evaluate your credit history. There are dozens of different scoring models out there, so you may never know for sure whether you'll be approved. Still, knowing one of your scores could give you a good idea of your scoring range and whether you have any chance of getting the card you want.
3. What's the APR?
A card's APR, or annual percentage rate of interest, will tell you how much you'll be charged if you don't pay the full balance on your credit card by the due date. If you've adopted the (great) habit of paying off your balances in full each month, your future card's APR may not matter as much. However, it never hurts to look for a card with a low APR just in case an emergency comes up and you're unable to pay in full regularly.
Keep in mind: Some cards offer 0 percent or very low introductory APRs as promotions to entice people to apply. However, these rates don't typically last for more than a couple of years, so make sure you know what the new rate will be after the introductory period expires. If it's extraordinarily high, it may be worth considering a different card with a lower regular APR, even if it offers a shorter introductory rate. You'll probably have this card for years to come, so it's important to not get distracted by temporary offers -- instead, keep the long term in mind.
4. What do other people think about this card?
Let's face it. The credit card companies want you to apply for their cards, so they're not going to reveal the negative aspects of their products in big bold print. Terms can also be confusing and don't provide much of an indication how the company runs its business. Reviews, on the other hand, can be telling and give you valuable insight into how a company treats its customers.
The Internet makes it easier than ever to compare offers and see what people really think about the cards you're considering. Check out resources like Credit Karma's extensive reviews section or Bankrate or NerdWallet's library of credit cards to help find a card that's good both on paper and in real life.
Keep in mind: Many people are more prone to complain than write glowing reviews. Take their opinions with a grain of salt, and look for red flags like a bunch of different reviews mentioning the same flaw.
5. Will I be able to use this card responsibly?
If you have a history of mismanaging credit, adding another card to your arsenal may not be the wisest decision. Really ask yourself, "Do I need this card? Will it tempt me to spend unnecessarily?" If your goal is to use this card to improve your credit health, you may be ready for the additional responsibility. And if you're planning on paying off this new card's balance in full each month, great! But if you simply want a new card because your other cards are maxed out and you want to buy that shiny new smartphone, it may wise to hold off awhile.
Keep in mind: If your answer to this question is "yes," and you do receive a new card, don't forget to keep your other cards active and in good standing. While it's perfectly fine to make this spiffy new card your primary means of payment, show your older cards some love once in a while, as they help raise your average age of accounts and keep your utilization rate lower. You wouldn't want your creditors to close them due to lack of use!
The bottom line: Just as you would hunt around for the best bargain when shopping for major purchases, the same care should be taken when applying for a credit card. Compare offers, make sure you read all the terms and conditions, and ask yourself these important questions to find the best card that suits your needs.
