Credit card companies spend millions of dollars on marketing. They study human behavior to learn what colors to use and what kind of language to use to attract more customers.
While the big credit card companies are still doling out the big bucks on television commercials and direct mailing, now they’re getting closer to you by investing in social media marketing, inserting their clever ads directly into your Facebook and Instagram feeds.
They are very good at what they do. So good that they can convince a person with 4 Credit Cards and massive credit card debt to open another credit card. These experts at marketing can convince even the savviest of savers to open a zero percent interest, no yearly fee, rewards credit card.
But as the old saying goes, if it sounds too good to be true, it usually is. Before you go and get yourself in trouble by opening up yet another credit card, ask yourself these 4 questions first.
1. Do You Really Need Another Card?
This is the first question you should ask yourself if you are considering opening up another credit card. While you may want a shiny new card with better terms than your current card, that simply isn’t enough to justify opening up a new account.
If you want a new credit card because you’re going to transfer your balance to a new zero percent interest card, this is a very dangerous game to play. If done correctly you can save quite a bit of money, but you could end up in a very serious hole if you can’t pay off the balance in time.
Are you trying to fund a lifestyle that you can’t afford? Are you trying to keep up with your friends? The only way to do this is to increase your income, not add more credit. Sooner or later it’s going to come back and bite you. Just a couple of years of fun could lead to a lifetime of bad credit.
Only use credit cards as a tool for rebuilding your credit or as a vehicle for earning rewards. Use credit cards wisely, don’t let them use you.
There are credit score implications you should consider before opening up a new card.
When you open a new credit card, you are changing the average age of your credit history. If you have a 10 year old card and nothing else, the average age of your credit profile is 10 years. Now if you open up a new one your average age would be just 5 years.
Opening a new account can also mess with your credit utilization ratio. Let’s say you have one credit card with a $3,000 limit and a balance of $1,000. This gives you a CUR of 33% which is about as high as you want to get. If you open a new card with a $1,000 credit limit and max it out, you will now have a total credit limit of $4,000 with a total balance of $2,000, giving you a very high CUR of 50%.
If your credit profile consists of nothing but credit cards, creditors aren’t going to be impressed. A good credit report has student loans, a mortgage, a car loan and yes credit cards. If you want to increase your credit score, opening up yet another credit card may end up doing more harm than good.
2. Did You Read The Fine Print?
I know that some offers seem great. Some offers may even seem so good you think you can outsmart the credit card company and make money off of them. But ask yourself this question, why would the big banks want to help little old you? There’s only one way they can fund their massive marketing campaigns, and that’s by making big money off of people like you.
Familiarize yourself with the cards’ terms. You will likely begin to find how they plan on making money off of you. Look at the following items and see if they sound fair to you:
Interest Rate – They got you to do a double take by offering you zero percent. But is that zero percent for 6 months or 1 year? Then after that, is it 17, 22, 29%? In theory you should keep this card for life, so who really cares about zero percent for 6 months, when you may use the card for another 20+ years.
Annual Fees – Check to see if there is an annual fee. Don’t get blinded by all of the flashy rewards they’re offering. Yes, I know that you may end up making $100 in rewards and only spending $50 per year, but that’s only if you always use the card. You never know, a competitor of theirs may make a better offer a year from now. Then you’ll be forced to either close this account or keep paying the yearly fee for a card you no longer use.
Other Fees – Is there a foreign transaction fee? What’s the deal with any late fees? If you’re late one time, does your interest rate jump up? What is the balance transfer fee? Often times credit card companies, much like airline companies, make their money with these pesky additional fees.
Rewards Points – 3% on restaurants sounds nice, but have you seen the list of restaurants that qualify? 2% on your grocery store purchases sounds great too, but again, what if the store you shop at isn’t listed? Do rewards points expire if you don’t use them? Is there a limit to the amount of rewards you can redeem? All of these are valid questions you need answered before you sign up.
3. What Are My Options?
Just because one credit card company enticed you into looking into their offer, doesn’t mean you should jump on it right away. Scope out the competition first, you may be surprised to find a better deal out there for you.
There’s a wide variety of credit cards available, each with other own advantages and disadvantages, so it doesn’t make sense to settle for the company whose sales pitch enticed you.
When deciding which credit card to sign up for, it’s not just about who has the lowest interest rate or the best rewards program either. It’s about which card best fits your lifestyle.
Some credit cards are great for business travelers who fly a lot and stay at hotels. Other cards offer extra points for purchases at the pump and would be best suited for those who have a long commute to work. Find a card that offers the best rewards on the things you already purchase the most.