So you’ve seen a great credit card deal, you’re sure the bonus miles you’re going to attract are worth the minimum spending required, and you’re ready to make a credit card application. Before you make an application, you need to be aware of the common pitfalls associated with applying for credit cards.
Don’t apply for too many cards at once
Some credit cards come with enticing offers, such as 40,000 bonus miles when you spend $3,000 or more. However, unless you can manage your spending without accruing interest by paying off the balance in full each month, those bonus miles won’t be worth it.
Resist the temptation to apply for more than 1 or 2 cards at once. When you get your first card, only spend as much as you can afford to pay off in full. If you don’t pay off your balance in full, you’ll begin building interest charges that negate the benefits of the bonus miles you obtain.
Manage your spending wisely
When you’re approved for a credit card it can be difficult to resist the urge to spend as much as you can. Whether that temptation comes from wanting to get those signup bonuses or simply because you’re a bit of a spender, you need to manage your finances wisely.
Only spend money when you know you can pay your balance in full each month and on time. When you only pay the minimum amount you face high interest charges and it takes an increasingly long time to pay off the balance. This can lead to a spiraling circle of debt, which looks bad on your credit report, lowers your credit score, and makes the bonuses you enjoy pointless.
To make sure you don’t spend too much, create a budget and stick to it. Look at how much you can afford to pay off at the end of the month and do just that.
Consider your future financial goals
Would you like to buy a house at some point in the future? Each credit card inquiry you make stays on your credit report for two years. When you apply for a mortgage, excessive numbers of applications may be perceived as a sign of financial distress. Although some individuals get mortgages despite this, you should consider how credit card applications fit into your larger long-term financial goals.
Always consider your credit score
Good financial management is the secret to maintaining a high credit score.
When your score drops below 650, you’re unlikely to secure good financial deals. If you need a loan for a car or a mortgage, you should have one that’s 700 or above, and ideally at least 740 to get the absolute best rates. Furthermore, a particularly poor score (under 600) looks bad when you’re seeking employment or applying for a rental property.
To maintain a good score, don’t apply for an excessive number of credit cards at once and do manage your debts carefully. When you’re able to pay off your balance each month and get those bonuses in return, you can then think about taking on more cards. However, if you’re new to making the most of credit cards, you should probably focus on just 1 or 2 applications until your experience grows.