6 Things to Know Before Getting a New Credit Card

Getting a new credit card can be exciting. The day it arrives in the mail, you feel like a kid on a holiday morning opening a package. Only instead of a gaming console, dream dollhouse or new bike, you’re unwrapping the possibility of better cash-back rewards, a lower interest rate or a resource to help you manage everyday spending.

However, opening a new credit card isn’t as easy as taking that new bike around the block. You know how you use the card can impact your finances, but even applying for one can affect your credit profile. While that may sound scary, it doesn’t have to be. If you’re aware of certain factors in advance, you’ll be better prepared to find the right card for you and use it wisely.

1. Know Why You Want the New Card

Every day, you’re exposed to marketing messages around credit cards. Celebrity spokespeople promise showstopping rewards. Witty catchphrases make you think missing out on that introductory offer would be a mistake.

But have you considered whether those perks actually suit your needs? Taking the time to think about which features fit your lifestyle and financial goals can help you cut through the marketing spin and find a card that suits you.

If you’re more of a homebody than a globe-trotter, a card with travel rewards might not make sense. But if you tend to carry a balance, you could be better served by a card with a lower interest rate than an impressive rewards package.

Sitting down with a cup of coffee, or potentially something stronger, and listing your needs, preferences and goals for your next credit card is a good first step. Once you have a clear sense of purpose, it’s easier to compare cards and determine whether a particular offer will truly help you long term.

Once you have a clear sense of purpose, it’s easier to compare cards and determine whether a particular offer will truly help you long term.

2. Check Your Credit Before You Apply

When it comes to understanding your credit history, you can’t embrace your inner ostrich and keep your head in the sand. Not when your credit history can influence the cards you’re likely to qualify for.

Before you fill out any applications, review your credit reports from the three major credit bureaus to get the lay of your credit landscape. There are a few key things to keep an eye on:

1. Your existing accounts: Check which credit cards, loans and other accounts are listed under your name. Make sure you recognize them and that the information is accurate.
2. Payment history: Look for any late or missed payments. Payment history is an important part of your credit profile, so knowing what’s there can help you understand how a lender may view your application.
3. Account balances: Check the balances reported on your credit cards and other revolving accounts. High balances relative to your available credit may also affect your credit profile.
4. How long you’ve had credit: The age of your existing accounts provides context about the length of your credit history.

If your review shows a less-than-perfect credit history, don’t forget that you’re trying to understand what potential lenders might see, not to find fault with yourself. 

And if you’re not happy with certain aspects of your credit history, you’re not stuck with them forever. Building or improving your credit usually takes time and consistent, responsible habits, such as making payments on time, paying down credit card balances and not taking on more debt than you can manage.

Even if you need to pause your immediate plans to get a new credit card, that’s perfectly fine. You’re developing skills that won’t just help you get a new card, but help you use it wisely.

3. A New Application May Affect Your Credit

Whenever you apply for a credit card, the lender will typically check your credit. You’re probably prepared for that. You may not be prepared for that check to result in a hard inquiry on your credit report.

And if the term “hard inquiry” alarms you, relax. Usually, you don’t need to sweat a single hard inquiry. That said, applying for several credit cards over a short period can result in multiple hard inquiries. That may make lenders wonder whether you’re facing financial stress or taking on too much new debt too quickly.

But you don’t have to jump to a doomsday scenario. Just research cards carefully before you apply. Look at each card’s eligibility criteria, fees and terms, and choose offers that seem to fit your financial situation instead of applying for every card that dazzles you with rewards and perks.

4. Opening a New Account Can Change Your Credit Profile

You’ve done your research, found the card that’s best for you and applied successfully. Congratulations. But don’t be surprised if several aspects of your credit profile change.

Your new account could impact the average age of your credit accounts, and it adds another revolving credit account to your credit history. This isn’t necessarily a bad thing, but it’s something you should be aware of. Credit scoring models consider multiple pieces of information, which means the impact of a new card can vary from person to person.

Here’s the important thing to know: A new credit card is simply another piece of your larger credit picture. If you use your card responsibly and it serves a purpose, whether that’s travel rewards that support your wanderlust or a manageable interest rate, opening it was a smart move.

A new credit card is simply another piece of your larger credit picture.

5. Pay Attention to Features and Terms

It’s easy to get so excited about a card’s rewards that you forget about the other elements that are just as crucial, even if they’re not as fun. Before applying for a new card, look closely at what you’re actually signing up for.

Start with the card’s annual percentage rate, or APR, which is the interest rate you may be charged when you carry a balance. Different types of transactions may have different APRs, so a card could have one rate for purchases and another for cash advances.

You should also look for potential fees, including:

• Annual fees
• Late payment fees
• Balance transfer fees
• Cash advance fees
• Foreign transaction fees

You probably won’t encounter every fee with every card you investigate. Still, understanding the possible costs before you apply can help you avoid unpleasant surprises.

Many credit card ads also talk up promotional APRs, or lower interest rates offered for a limited time. These promotional periods can last for several months or longer, depending on the card. Read the terms carefully and understand how long the promotional period lasts, which transactions qualify for the offer and what happens when it ends.

6. Have a Repayment Plan Before You Apply

This may seem like commonsense advice, but it’s worth repeating anyway: Your credit card spending should fit within your existing budget. That doesn’t always mean squeaking by with minimum payments.

Yes, paying the minimum required amount can keep your account from becoming delinquent, and sometimes, that’s all you can do. However, you could end up carrying a balance and paying interest. Paying your statement balance in full each month, when possible, can help you avoid that interest.

The Bottom Line

Getting a new credit card doesn’t have to be complicated or scary. But before you get swept up in the promise of rewards, cash back or a flashy welcome offer, you should understand what you’re signing up for.

Knowing why you want a new card, checking your credit history, understanding how a new account could affect your credit may take some time and research, but the effort is worth it.  While you’re heads-down in study mode, you should also determine how you’ll pay back what you charge, even if it’s as simple as that new bike for your own kids, or that niece or nephew you love to spoil.

The goal isn’t to avoid new credit altogether. It’s to understand how it fits into your financial life so you can choose the right card and use it wisely.

The goal isn’t to avoid new credit altogether. It’s to understand how it fits into your financial life.