The urge to apply for some shiny new plastic can be tempting — particularly if an issuer is touting big rewards and an even more lucrative sign-on bonus. But while a credit card (when used responsibly) can be a great spending tool, there are times when getting a new one simply isn’t in your best interest.
Here are three signs you’re not ready for a new piece of plastic.
1. You’ve Missed a Payment (or Two)
It may not seem like a big deal, but even one missed payment can do big damage to your credit score, and if you’re forgetting or struggling to pay your existing credit card bills every now and then, it’s probably not a good idea to add a new one to the mix. Instead, focus on establishing a stellar payment history — the most important factor, incidentally, among most major credit scoring models — before you search for some plastic.
2. You’ve Maxed Out Old Cards
It’s also potentially problematic if you’re bumping up against the credit limits and/or only managing to make the minimum payment on existing credit cards. Credit utilization — the amount of debt you are carrying versus your total available credit limit(s) — is the second most important factor among credit scoring models. There’s a reason for that — if you’re bumping up against existing credit limits, chances are a new one will put you over the edge and cause you to miss payments. Before you go shopping around for new plastic, it’s a good idea to keep your credit utilization rate below at least 10%, and ideally 30%, of your total available credit limits.
One caveat: If you’re carrying a lot of high-interest credit-card debt, you may want to consider a balance-transfer credit card, which will let you move that balance to a new card with a low-to-no introductory annual percentage rate for a specified period of time. Just know if you take this route, you’ll want to pay down those balances before the introductory period ends — otherwise, you could face paying retroactive interest. It’s in your best interest to put that new credit card on ice so you pay down old balances and don’t run up new ones.
3. Your Credit Score Is in Rough Shape
Sorry to break it to you, but a bad credit score won’t qualify for most credit cards out there (minus secured credit cards, which are designed to help people rebuild or build credit). And fair credit scores aren’t going to qualify for the best terms and conditions, so if your credit is looking a little lackluster — whether due to the aforementioned missed payments, maxed out credit lines or other missteps — it’s probably a good idea to work on your scores before filling out any applications. Otherwise, that new plastic is likely to cost you in interest and even late fees, particularly if you’re prone to carrying a balance. (You can see where your credit score currently stands by viewing your two free credit scores, updated each month, for free on Credit.com.)
Consider taking your so-so credit as a sign you’re not ready for a new credit card and work on fixing your credit instead. You may be able to improve your credit scores by disputing errors on your credit reports, paying down high credit-card balances and limiting new credit inquiries while your score recovers. You can build good credit in the long-term by making all payments on time, keeping debt levels low and adding a mix of credit accounts as your score and your wallet can handle them.
More on Credit Cards:
- Credit.com’s Expert Credit Card Shopping Tips
- How to Get a Credit Card With Bad Credit
- An Expert Guide to Credit Cards With Rewards