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Getting the Right Credit Card at the Right Time

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Millions of Americans have at least one credit card in their possession. In fact, the 2019 Experian Consumer Credit Review tells us Americans have an average of four credit cards. Is this a bad thing? Not necessarily. Credit cards can be a great tool for building credit history and managing finances. However, if they are misused, they can wreck your finances and leave you with damage that can take years to repair.

When is the right time to get a new credit card? That depends on your financial situation and your goals.

Considering the times, you may be contemplating taking out your first or fifth credit card. Before deciding, hear what these finance experts have to say about the right time to get a credit card.

Assess Before You Apply

Selecting the most suitable credit card requires careful consideration of various factors, including your spending habits, credit score, lifestyle, and financial goals. Before delving into the specifics of each credit card option, it’s essential to understand your personal financial situation and objectives.

Credit Score and Eligibility

Your credit score plays a pivotal role in determining your eligibility for various credit cards and the terms you’ll be offered. Generally, higher credit scores qualify you for better rewards, lower interest rates, and higher credit limits. Obtain a copy of your credit report and review it for any errors or discrepancies that may impact your credit score.

Checking your credit report and score before applying for a new credit card is a prudent financial practice that can help you make informed decisions and improve your chances of approval. Here’s why it’s essential to review your credit information before submitting a credit card application:

  1. Know Where You Stand: Reviewing your credit report and score gives you insight into your current financial standing. You can see your credit history, outstanding balances, payment history, and any derogatory marks. Understanding your credit profile helps you assess your eligibility for different credit cards and anticipate potential issues that could affect your application.
  2. Identify Errors: Your credit report may contain errors or inaccuracies that could lower your credit score or affect your ability to get approved for a credit card. By checking your report, you can spot any discrepancies, such as incorrect account information or fraudulent activity. Correcting errors before applying for a new credit card can prevent unnecessary delays or denials.
  3. Improve Your Credit Score: Your credit score plays a significant role in the credit card approval process. Lenders use your credit score to evaluate your creditworthiness and determine the terms and conditions of the credit card offer. By reviewing your credit score beforehand, you can identify factors that may be dragging down your score, such as high credit card balances or late payments. Taking steps to improve your credit score, such as paying down debt or resolving past-due accounts, can increase your chances of approval and qualify you for better interest rates and rewards.
  4. Choose the Right Card: Different credit cards cater to different financial needs and lifestyles. By understanding your credit profile and score, you can narrow down your options and choose the credit card that best aligns with your goals and preferences. Whether you’re looking for a card with low interest rates, generous rewards, or specialized benefits, checking your credit report beforehand allows you to make an informed decision and apply for the card that suits you best.

Checking your credit report and score before applying for a new credit card empowers you to take control of your financial health and maximize your chances of approval. By knowing where you stand, identifying errors, improving your credit score, and choosing the right card, you can make the credit card application process smoother and more successful.

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Understanding Your Spending Habits

Before applying for a credit card, take time to evaluate your spending patterns and habits. Analyze your monthly expenses, including groceries, dining, entertainment, travel, and recurring bills. Understanding where your money goes will help you identify the categories where you can maximize rewards and benefits offered by different credit cards.

To determine whether it’s the right time to take out a credit card, start by assessing your finances. This simple step will tell you if a credit card is something you can afford.

Some people see credit cards as free money, and this misconception can lead them into debt. Credit cards are another form of payment, so if you have one, you need to be able to pay for what you spend. If you can’t afford to pay your balances in full every month, you may want to think twice about getting a new card.

The only way to know if you can afford a new card is to assess your finances and create a budget. A budget gives you a better understanding of your spending habits and helps you plan ahead. If you know how much spare money you have to spend every month, then you’ll know if you can afford extra credit card expenses. For example, if you only have $500 left after paying your monthly bills, you can’t afford to spend an extra $700 on a credit card.

Something else you want to evaluate is how disciplined you are with your budget. If you tend to overspend, a credit card may not be a good idea.

Mark LoCastro of SmartAsset, a platform that links you with local financial advisors, bolsters this point.

“If you can’t stick to a budget, you’re probably not ready for a credit card. Without a budget, you won’t know how much money you can realistically afford each month.”


EXPERT: Mark LoCastro – SmartAsset

When to Avoid Credit Cards

Credit cards aren’t right for everyone, especially if you don’t know how to use them. They can worsen a bad financial situation or mess up a good credit score if you’re not careful. In what situations should you avoid credit cards?

You’re in debt

While credit cards can be used to transfer balances as mentioned earlier, this isn’t always the best option for everyone. As Gerri Detweiler rightly states, “If you have debt you’re having trouble paying off, you may want to wait. A credit card may make it easy to get deeper in debt. If you are an impulse buyer, you may want to stick with the cash envelopes method of spending where you allocate certain amounts for spending, and when that’s gone you stop making purchases until the next month.”

Even if you aren’t in debt, a low credit score may be another indicator that you should hit the brakes. Assess why your score is low and decide whether to master managing the cards you already have before taking out a new one.

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“Financial signals like low credit scores, pre-existing debt or lack of steady income are all signs that you should wait to apply for a credit card.”

EXPERT: Ryan Tronier- Slick Deals

Purchasing a home

When purchasing a new home, one of the worst things you can do is take out a new credit card. Hard inquiries on your credit are a red flag to lenders; it could appear as though you’re in financial trouble or unable to manage your money. To reduce the chances of lenders denying your application, steer clear of new credit until after you’ve closed.

Applying for new credit

Similar to taking out a mortgage, if you’re in the process of applying for new credit like a car loan or personal loan, it’s not a good time for a new credit card.

As Gonzalez advises, “You should definitely avoid applying for a credit card if you plan on getting a large loan, or if you’ve already applied for another source of credit.”

Poor spending habits

Everyone has different spending habits––some people are more frugal than others. Impulse spenders find it hard to scale back and often buy their way into debt. If this sounds like you, credit cards shouldn’t be a top priority. The alternative is to get a card with a low limit to help control spending.

Jesse Mecham from You Need a Budget expands on this saying,

“Simply put, if you don’t have control over your spending, you aren’t ready. Learn to budget—learn to make good financial decisions with the money you have. Learn to pay your bills on time and save for larger, less frequent expenses. If you’re using a credit card to make purchases that you don’t have the cash already available for, it’s time to put the credit card down and go back to the budget.”

EXPERT: Jesse Mecham- You Need a Budget

Struggle to pay on time

While you may not overspend, late payments are a credit score killer, too. Your payment history is a major part of your credit score, so you want it to be as close to perfect as it can get.

As LoCastro explains, “If you’re often late on your monthly payments, like rent, utilities or a cell phone bill, you may not be ready for a credit card. Once a new credit line is established, it’s very important to make all payments on time, as your history of making timely payments is the biggest factor in your credit score. Payment history makes up more than a third of your score, so you should hold off on applying for a credit card until you are consistently paying your existing bills on time.”

Aside from harming your credit score, paying late can also lead to higher APR and late fees, which both result in more spending.

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Develop a Strategy

So, when is the perfect time to get a credit card? When you have a clear use for one. Determine what you want the credit card to do for you and work towards that goal. As Sean Messier of Credit Card Insider states, “Generally, there’s no rule of thumb for the “right time” to get a credit card, because there are credit cards designed for every kind of applicant. The right time to get a credit card depends on the person.”

On that note, develop a strategy so you have clearly defined guidelines for yourself before taking out a credit card. Below are a few reasons you may want to take one out and how a credit card could help you achieve that goal.

Build Credit History

Your credit card history is 15% of your score. Some are too young to have a credit history, and others intentionally steer clear for fear of overspending.

For those without a credit history, apply for a secured credit card to build your credit. Practice keeping the balance below 30% of the available limit and paying it off in full before the due date. If you’re under 18, have a discussion with your parents about adding you as an authorized user on one of their credit card accounts. This will give you a head start on building your credit history and learning to borrow responsibly.

If you have a credit history and a good score you might want to get another card to improve your utilization rate. It also looks good to have various accounts in good standing to prove you’re at a lower risk for bigger loans.

“The right time to get a credit card is as soon as possible, in order to start building credit. Even as a teenager, you can be added as an authorized user on your parents’ credit cards. In high school, it can act as an emergency-use device. In college, you should be able to upgrade to a card of your own. This will not only help you build credit, but also teach you how to responsibly use a credit card.”

EXPERT: Jill Gonzalez- Wallet Hub

Taking Advantage of Seasonal Promotions and Offers

Taking advantage of seasonal promotions and offers can significantly enhance your credit card rewards and savings potential. By strategically timing your credit card application to coincide with peak shopping seasons or special events, you can capitalize on limited-time sign-up bonuses, increased rewards rates, and exclusive discounts. However, it’s crucial to assess whether the card aligns with your financial goals and spending habits before applying. Evaluating factors such as annual fees, rewards structure, and redemption options ensures that you maximize the benefits of seasonal promotions while selecting a credit card that provides long-term value and supports your overall financial strategy.

Planning for Major Purchases or Travel

Planning for major purchases or travel before applying for a credit card is a prudent strategy to optimize your rewards and benefits. Consider the specific expenses associated with your upcoming purchases or travel plans and choose a credit card that offers relevant rewards and perks. For example, if you’re planning a trip abroad, look for a card with no foreign transaction fees and travel-related benefits such as travel insurance and airport lounge access. Similarly, if you’re preparing for a large purchase like a home appliance or furniture, consider a card with a 0% introductory APR offer to finance the expense without accruing interest. By aligning your credit card choice with your financial goals and spending patterns, you can leverage the card’s features to your advantage and maximize the value of your purchases or travel experiences.

Paying Off Debt With a High APR

You may think getting a credit card while in debt is a crazy idea. However, if you use it strategically, a credit card can help revive your finances. For example, you can get a balance transfer card, which enables you to move your debt from a high-interest credit card to one with lower interest. This way, you pay less in interest while working towards clearing your debt.

As Messier explains, “… it might make sense to apply for a new card if you’re looking to transfer a high-interest balance to another card with a 0% balance transfer APR offer.”

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Credit Cards With a Purpose

Credit cards serve different purposes depending on who’s using them. For example, a teen who just turned 18 may decide to take out a credit card to build their credit, while a 35-year-old with two credit cards may decide they need one more to build their portfolio.

There are two main types of credit cards; secured and unsecured. Both can serve different purposes depending on your end goal.

Secured Credit Card

A secured credit card requires a refundable deposit––usually hundreds of dollars. It’s ideal for people who don’t have a credit history and need to build one. Lenders are apprehensive to give such individuals credit because they haven’t proven they’re capable of borrowing and paying back on time yet.

Secured credit cards give you a chance to show lenders you can borrow responsibly. Brad Strock of Truit–the 6th largest bank holding company explains how a secured card can be used.

“Some consumers may even prefer starting off with a secured credit card—a product where the credit limit is secured by a cash deposit. This generally allows a consumer to experience what it’s like to use a credit card for their daily transactions, while still establishing limits on their spending power.”

EXPERT: Brad Strock – Truist

Unsecured Credit Card

An unsecured credit card is the opposite of a secured one, as you don’t need collateral before you are approved. However, you do need good credit history, otherwise, you could end up with a high-interest rate. Unsecured credit cards can build your credit score and even help you save money if used strategically.

Benefits of Credit Cards

Credit cards have several benefits, so it’s good to be aware of them before taking out a new one. In doing so, you get the most out of them; savings and perks included.

Signup Bonus

Credit card signup bonuses are a way to earn hundreds of dollars in rewards. Issuers offer them in the form of:

  • Cash back: when you make a purchase and get a percentage of what you spend back – Compare cash back cards
  • Points: “currency” given by card issuers for spending. Each issuer and card has different redemption methods (e.g. travel, cashback, merchandise, or gift cards).
  • Rewards: An umbrella term that refers to cashback, points, and any other benefits you receive for using a credit card.

Often times, credit card issuers offer these bonuses to newcomers. However, to be eligible for these bonuses, you usually have to spend a certain amount within the first few months. You can then use the points you earn with their shopping, travel, and entertainment partners.

Get a signup bonus card before big expenses for strategic benefits.

Johnny DisCala travel expert and owner of JohnnyJet explains,

“Whether it’s medical bills, vacation, or a costly home redesign, a large purchase can also be a good time to apply for a credit card when you want the signup bonus to offset some of the purchase cost. Of course, make sure you can pay off the balance in full and you’re comfortable holding the card for at least one year. Most credit cards require you to keep your new account open for at least one card anniversary to prevent card churning. If the card has an annual fee, you will need to pay the annual fee on your first card anniversary before you can cancel the card.”

EXPERT: Johnny DisCala- Johnny Jet

There are also time requirements for when you can redeem your bonuses. So, beware of that if you plan to use them for a purchase or trip.

Savings and Rewards

One thing credit card companies use to lure people in is perks and rewards. Knowing you could save money on each purchase or get air miles can be an irresistible incentive for many. However, it’s key you understand each reward program and how it can benefit your financial goals. Some of the most common rewards you can get with credit cards include:

Cash Back

Cashback credit cards offer a percentage of your purchases back in the form of cash rewards. These cards are ideal for individuals who prefer straightforward rewards and want to earn money back on everyday purchases. As Gerri Detweiler of Nav, a leading business financial management app provides insight on the cashback perks of credit cards.

“Credit cards often offer perks such as 2% cashback, which is like getting a 2% discount on your purchase.”

EXPERT: Gerri Detweiler- Nav

Every credit card offers a different cashback rate. For example, one might offer 3% cash back at U.S. supermarkets, 2% at gas stations, and 1% on everything else. Another credit card offers unlimited 1.5% cashback. It’s best to shop around and see which cards offer the best cashback rewards, keeping annual fees in mind.

Also, think about your needs. If you eat out often, find a credit card that gives generous cashback rewards for eating out. Or maybe it’s a specific big box, grocery store, or gas station.

Standard Points

Many credit cards offer standard points, which can be redeemed for various things. This could include cash, travel, products, or entertainment, depending on the issuer. For example, a card could earn you 2X points at supermarkets and gas stations for the first $6,000 you spend in a year, and then 1X points once you exceed that cap. You also get 1X points on all other purchases you make.

Regarding how points work, each point has a value depending on the issuer. One point could be worth 1-2 cents. The value of the point can even change depending on how you choose to redeem it. An issuer could make a point worth 1.5 cents if you redeem it for travel purchases. But only 1 cent per point if you opt for statement credit. Make sure you understand how points can be earned and redeemed before you sign up for a card.

Miles and Travel Points

Travel rewards credit cards are designed for frequent travelers and offer perks such as airline miles, hotel stays, and travel insurance. These cards often come with annual fees but can provide significant value for those who travel frequently.

Some people are jet setters by nature, others have work obligations. Credit cards can make travel significantly cheaper whether you’re traveling for work or leisure. If you travel often, look for credit cards that focus their rewards on travel. For instance, you could get a miles-based credit card, so you earn miles or points for every dollar you spend. Some cards even give you bonus miles for certain purchases.

What’s the difference between a card that earns points and one that earns miles? A credit card that earns miles earns currency in an airline’s frequent flyer program. You can claim the miles and get free flights with the airline once you’ve acquired enough. With points, however, the credit card program is directly offering you points. They aren’t part of airline loyalty program points and can be more flexible (meaning you have more options regarding redeeming your points).

An example is the United Explorer Card. You earn 2 miles per dollar on eligible purchases at restaurants and holiday stays.

Matthew Kepnes author and founder of Nomadic Matt, a travel blog, shares helpful information about how to choose credit cards, especially for travel purposes.

“The first thing you should look at are the perks. While there are tons of cards out there, each one has different benefits. What perks are the best fit for you? Do you want lounge access? Cash back? Free checked baggage when you travel? Free hotel stays? Decide what benefits are a priority for you. That will help you narrow down your choices.”

EXPERT: Matthew Kepnes- Nomadic Matt

Insurance

Let’s face it, sometimes life happens, and your finances are thrown off track consequently. Credit cards offer various types of insurance that will cover you in the event unforeseen circumstances arise. Holly Johnson from Club Thrifty, a personal finance and travel blog explains how credit cards can be used within this context.

“There are many reasons to sign up for a credit card outside of genuine need. For example, some people use credit cards just to earn rewards for their spending. Others do so in order to gain access to consumer protections like travel insurance, purchase protection against damage or theft, or extended warranties.”

EXPERT: Holly Johnson- Club Thrifty

For example, you can get credit card insurance, which requires you pay a premium to receive coverage for payments if you lose your income or are falling behind on payments. An added advantage is your credit score won’t be affected and the card issuer will help you make monthly payments toward your outstanding balance. However, some experts argue that this type of protection simply increases your costs, which you need to keep in mind when considering this type of service.

Other types of insurance you can enjoy are;

  • Price protection coverage: if the price of an item you buy decreases after purchasing, you may get a refund for the price difference
  • Purchase protection coverage: lost, stolen, or damaged items may be eligible for partial or full reimbursement
  • Return protection coverage: your credit card issuer can issue a refund if the retailer you purchase from refuses to refund you for an item
  • Cell Phone Insurance coverage: if you pay your phone bill using your card, you could get up to $600 protection if the phone is lost or stolen
  •  Rental car insurance coverage: makes it possible to waive rental car insurance coverage
  • Lost luggage: if luggage is lost or delayed, you could be reimbursed a certain amount
  • Trip cancellation/interruption insurance coverage: if a trip is interrupted because of death, illness, or injury, you may be able to recoup a portion of non-refundable travel expenses

Note that not every credit card offers all these perks; each issuer is different. Speak to your credit card provider to see what types of insurance they provide and how you can tap into them. Then assess the cost based on your budget and needs to decide if it’s worth it.

Top Tips for Getting a Credit Card

Now that you’re in the position to make an informed decision about whether it’s time for a credit card, here are a few takeaways that will set you up for success.

Pay your balances in full

If you can, pay your balances in full every month. Doing so will save you from paying interest on your balance and boost your credit score.

“The worst thing you can do when using a card is not pay off your balance in full within the grace period and then get hit by finance or interest charges. If you are new to credit or trying to rebuild your credit, it’s not uncommon to pay a rate around 20%, which can quickly lead to a financial crisis if you’re not careful!”

EXPERT: Curtis Arnold & Jennifer Doss- Cardratings.com

Look for 0% APR introductory cards

You’ve likely come across a credit card offer that boasts of 0% APR–also known as a teaser rate–at some point. This essentially means no matter how much you spend; you won’t be charged any interest for the duration of the offer. This allows you to spend and pay back at your own pace without incurring more costs. It’s ideal to utilize a 0% APR bonus before making a large purchase like a vacation or new furniture, for instance.

This is one of the few scenarios where you don’t necessarily need to have all the money to clear the balance before making a purchase because you won’t be charged interest if you leave a balance. However, make sure you pay off the balance in full before APR kicks in, which is usually 6-18 months later, depending on the period you qualify for based on your credit score.

Jill Gonzalez expands on the benefits of utilizing a 0% APR period.

“For example, if you’re looking to make a large purchase, applying for a 0% APR credit card can be a wise move. This will enable you to avoid interest entirely if you pay in full by the time the card’s regular APR takes effect.”

With a credit card, the more you can save, the better it is for your finances. Look for cards that offer 0% APR for an introductory period, so if you carry a balance, you don’t end up paying interest.

Finance writer Thomas Tracy explains,

“If you plan on carrying a balance from month to month, APR will be extremely important in keeping interest charges to a minimum. If you’re averse to fees, a card with no annual fee will suit your needs. If you travel frequently for business or pleasure, a rewards card that offers cashback or points on airfare or hotels will help defray the cost of your journeys.”

EXPERT: Thomas Tracy- Thom Tracy

Pay Attention to the Fees and APR

Sometimes, a credit card may seem like a good idea until you calculate the fees and APR. If you’re not careful, all the money you think you’re saving in rewards goes toward paying both.

Kepnes shares advice on how to make sure it’s worthwhile. “I look at the annual fee. I compare that to the perks and see how it balances out. For example, a $299 annual fee seems high, however, if you get a free hotel stay each year and free lounge access, you’ve essentially covered that $299 cost. So, don’t just look at the annual fee on its own — compare it to the perks to see how things balance out.”

Credit cards can help accelerate your growth in the financial world when you know how to use them. Hopefully, the words of wisdom shared by our experts have given you information you can use to improve your financial situation.

Another credit card may not be the solution to your debt problems. Connect with a certified credit counselor to review your options.

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