There’s a lot to think about if you’re considering signing up for a new credit card — do you want a basic one or one that comes with cash back rewards or travel rewards? Can you afford an annual fee (and will it even be worth it if you can)? But have you ever thought about when the right time to get one might be?
With the holidays coming up, you’re likely seeing ads for store credit cards when you’re at the register and may even be getting bombarded with card offers arriving in the mail. So, with all those offers, is now the time to take the plunge? Here are three reasons you may want to snag one of those offers before we ring in the new year.
1. You Could Really Save
Many people apply for new credit during the holidays as a result of getting a discount on store merchandise. Alternately, since many people are already going to be spending a lot, they might want to take a bank or issuer up on a big signup bonus they’re offering. These signup bonuses often let you earn a boatload of points once you hit a certain spending threshold within your first few months of having the account.
“If you have good credit and you want a new credit card specifically to use for your holiday shopping to take advantage of a discount promotion or big bonus reward points, it [can] save you money and that’s a great reason to consider getting a card before 2017,” Bruce McClary, spokesperson for the National Foundation for Credit Counseling, said.
However, before signing up for a card, Barry Paperno, a credit expert who blogs at Speaking of Credit, advised carefully evaluating the different cards based on their rewards, promotions, fees and interest rates. You’ll also want to consider how this will affect your budget, as getting a card to buy an item you want, but really can’t afford certainly won’t be worth it. Also, spending outside your budget to earn bonus rewards won’t be fruitful either.
2. You Have Good Credit
Another reason you may opt to apply for new plastic now is that you have good credit and may be eligible for some of the best rewards credit cards on the market, as these tend to require you have a good credit score. While this can be motivating, it’s important to still consider the effect getting (and using) the card can have on your credit. Credit card applications each can generate a hard inquiry on your credit report, which can ding your score.
“Your score will usually recover after about three months assuming you practice responsible credit behaviors such as paying on time and not carrying balances that represent more than 30% of your available credit limits,” Jeff Richardson, spokesperson for Vantage Score Solutions, said.
If you don’t know where your credit currently stands, you can take a look at two of your credit scores for free, updated every 14 days, on Credit.com.
3. You Have a Plan to Pay It Off
If seasonal purchases are your motivator for getting a new card before we ring in 2017, “you need to have a plan to pay charges off entirely so as not take a permanent credit score hit from holiday charging,” McClary said.
Many issuers offer 0% introductory APRs that could buy you some time to pay back holiday purchases sans interest, which can also make plastic appealing this time of year. However, you’ll want to pay that balance down by the time that introductory period expires in order to ensure you come out ahead.
Before You Sign Up …
Your payment history is the biggest influencer of your credit scores, so a plethora of holiday charging that you can’t pay off can really come back to bite you if you miss a payment because of too many bills.
If you know you can handle a new card responsibly, now may be the right time to add that plastic to your wallet. But remember to do so responsibly and don’t let the potential perks or promotional financing tempt you to go overboard in getting new cards or in the spending you do once you have the card.
“If you take on too many credit cards at one time, you could charge way more than you are comfortable paying off,” which would be damaging to both your bank account and credit, Richardson said. “In addition, opening many new accounts and carrying high balances is an indicator to lenders of higher credit risk and your credit score could go down much further than just the new inquiry dip.”
Also, it’s important to think about your future plans before getting a new card. For example, if you are planning on applying for a mortgage loan or an auto loan in the next six months, it’s best to avoid taking on new credit cards.
“No 20% savings promotion on a credit card is worth jeopardizing even a quarter of a point on a mortgage loan if your credit score goes down, so keep that in mind,” Paperno said.