Essential Highlights
- Credit cards stand as potent financial instruments, aiding millions in shaping and restoring their credit profiles, collecting perks, and spreading out payments for significant expenses.
- Yet, misusing them can plunge users into relentless cycles of debt that are notoriously difficult to escape.
- Before you jump into applying for a new card, take time to reflect on your spending tendencies, financial standing, and what benefits you expect to gain.
Owning a credit card can be a significant advantage when aiming to build or sustain a solid credit profile. However, interest rates often hover above 20 percent. If you opt for a card, steer clear of carrying balances or reckless spending—accumulated debt could trap you, ultimately damaging both your credit score and overall financial well-being.
Is a Credit Card Something You Actually Need?
Contemplating “Should I get a credit card?”? This overview explores situations where acquiring one can be a smart move, and when it might be wiser to hold off.
Reasons to Get a Credit Card
- You’re looking to construct or repair your credit history
- You aim to boost your credit score
- You’re preparing for or have recently sought a significant loan (car, home, etc.)
- You wish to finance a purchase or consolidate debt via a 0% introductory APR deal
- You’re after reward points or cash back on your spending
- You desire a safer alternative to debit card payments
Reasons to Hold Off on Getting One
- Struggling to regulate your spending habits
- You already have more credit cards than you can responsibly manage
When Grabbing a Credit Card Could Be a Game-Changer
Credit cards can serve as handy tools for steering your finances wisely. Consider applying if any of these situations resonate with you:
Building or Repairing Your Credit Footprint
With prudent use, a credit card can genuinely lift your credit profile. Secured credit cards typically require an initial deposit, representing the foundation of your credit line. This payment history may be reported to credit bureaus, and over time, your secured card might transition into an unsecured one—potentially unlocking your deposit refund and increasing your credit limit.
Boosting Your Credit Score
Credit cards often rank among the most straightforward ways to enhance your credit rating. Besides punctual payments—which influence 35% of your FICO score—your credit score benefits from:
Credit mix: Representing 10% of your score, this pertains to the variety of credit types you hold. Already have a mortgage or car loan? A credit card adds diversification.
Credit utilization ratio & amounts owed: Accounting for 30% of your score, this ratio compares your current credit use against total available credit. Launching a new card can lower this ratio if you keep your spending modest relative to your limit, thereby lifting your score.
Common wisdom suggests maintaining utilization near 30%, but aiming for less than 10% is even better. As Beverly Harzog puts it:
“Keep your utilization low — ideally under 10%. Pay your bills in full and on time. Maintain this rhythm for seven or eight months, and you’ll notice tangible improvements.”
Heads up: Expect a slight dip in your score right after applying due to a “hard inquiry” by the issuer checking your credit. As you manage your card responsibly, your score should rebound.
Financing Purchases or Tackling Debt
Your card’s APR (annual percentage rate) determines the interest charged when carrying a balance month-to-month. Though credit cards often have high APRs compared to personal loans, many provide enticing 0% introductory APRs on purchases and balance transfers for 12 to 21 months.
Need some breathing room for a big buy or debt payoff? Cards with 0% introductory offers are like snagging an interest-free loan for a while, as Harzog notes. Just be sure to pay off the balance completely before the introductory window closes; otherwise, lingering amounts accrue interest at the usual APR. Also, watch out for balance transfer fees ranging from 3% to 5%.
Getting Rewarded for Your Spending
Strategic use of cashback or travel rewards cards can enhance your savings. Choose a card that aligns with where you actually spend money—perhaps groceries, gas, or dining.
Kelan Kline, co-founder of The Savvy Couple blog, shares:
“My wife and I have funded several vacations using travel rewards cards over the years—trips that might never have happened without them.”
Strong credit isn’t always essential to snag useful rewards. While you might miss out on rock-bottom rates or highest limits, sticking to a budget and timely payments still scores you perks like cash back or travel benefits.
Looking for Extra Payment Security
Debit cards are handy for budget-conscious spenders since funds withdraw directly from your bank account. However, with unauthorized charges, your liability on a credit card is limited to $50 if reported within two business days—and up to $500 if reported within 60 days. Beyond 60 days, you may be on the hook for the full fraudulent amount.
Banks can request written confirmation and take up to 10 business days investigating, during which funds may be unavailable.
The good news? Credit cards usually come with zero-liability policies, meaning your personal funds aren’t immediately at risk, unlike debit accounts.
Times When a Credit Card Might Not Be Your Best Friend
Despite the perks, certain circumstances make acquiring a credit card less advisable:
If You Struggle to Rein in Your Spending
While great for emergencies or 0% APR deals, credit cards aren’t magic fix-alls for chronic overspending. Impulse buys can balloon balances that rack up interest and keep you locked in debt.
Having more credit power won’t help if you can’t pay off your monthly balance—it may only worsen your financial situation.
Colin Walsh, CEO of Varo Money, warns:
“If you’re eyeing a credit card as a financial crutch or short-term loan, tread carefully.”
Harzog echoes this sentiment, urging honesty about your habits before jumping in.
“If you can’t wield credit responsibly, there’s no shame in sitting this one out. Own your limits.”
Right After Applying for a Major Loan
Avoid submitting credit card applications around the same time as big loan requests—such as mortgages or car loans. Multiple recent credit inquiries can tank your score and raise red flags for lenders.
Harzog explains:
“Mortgage lenders may wonder why you’re chasing more credit while applying for a big loan, suspecting potential money troubles.”
When Your Wallet Is Already Crowded with Cards
Having a handful of cards can lower your utilization ratio by increasing total credit, but juggling too many makes staying organized tough and temptation high.
Prioritize cards you actively use and can manage well. Missing payments or accumulating debt outweigh any rewards you might earn.
Applying for several cards simultaneously also harms your credit. If no major credit applications are planned soon, spacing out applications over months is preferable.
Additional Insights on Credit Cards and Credit Scores
According to recent data from financial sources, about 45% of Americans carry a credit card balance month-to-month, with the average interest rate hovering near 17%. Moreover, the average credit score in the U.S. sits around 710, reflecting generally good but varied credit health across populations.
For credit newcomers or those rebuilding, secured credit cards remain a solid starting point. Meanwhile, established users can consult online comparison tools to sift through current card options tailored to their credit profile and lifestyle.