What a great question with the holidays right around the corner. Okay, raise your hand if you have ever been at the store register and been asked by the cashier, “Would you like to take an extra 10% off todays purchase just for applying for our credit card?”
Your current financial situation should determine if this is a good or bad idea.
How does applying for the account impact your credit? Applying for a new card or loan may lower your score a little. Ten percent of a person’s credit score is based on new credit obtained. So, before you consider applying; know if you are going to need to apply for a home loan, refinance your mortgage, or obtain a car loan, etc. within the next eight to twelve months? Applying may not keep you from getting the loan, but it could impact the pricing and terms you receive because of your score being lowered.
Is the store a place you shop often or is the card something you will receive continued benefits? Once you open a new credit card you will not want to close the card in the near future. 15% of your credit score is based on credit history. Having accounts open for a long time helps this area of your score grow. So, if you don’t normally shop at that store or will be limited on the use of the card, the initial hit to your score probably wouldn’t be worth the small discount you receive.
How many credit cards do you already have? If you already have multiple credit cards, taking on another probably isn’t a good idea. It is a red flag to creditors when you have too many credit cards. Even if the accounts do not have a balance, they still have an available limit…which is future possible debt.
Do you have the money to pay off the account right now? If you don’t already have the cash to pay for the purchase, or just don’t pay off the account immediately, you’ll end up paying the balance off over several months. If the card has an Annual Percentage Rate (APR) of 21%, are you really saving? For example, if you get 10% off the purchase but the card charges 21%, how much are you saving? Zero, zip, nothing! You are actually paying more than if you had just paid cash on the day of purchase.
With that in mind, let’s say…
- You don’t need to borrow money for at least a year or more
- It is a store you love or the card can be used almost anywhere
- You only have one or a few other credit cards open
- You already have the cash to pay off the card immediately
Your next big questions should be about the cards fees and benefits.
- Do you get zero percent APR for a period of time using the card, if so, how long?
- Will you get an extra discount off your purchases every time you use the card?
- Do you receive good coupons by having the credit card that you would not otherwise receive?
- Can you use the card to get the percentage off every purchase, even with the use of a coupon? Are those savings going to come off the original price or sale price?
- Do you earn cash back or rebates, frequent flyer miles, points, cents off per gallon of gas, etc.?
If you already have a good or decent credit score, it is okay to be picky about which accounts you want to open. Make sure there are added benefits from the cards you open. For the most part, even if there is no zero percent APR period of time, using a credit card is safer than using your debit card in today’s hi-tech ID theft time. It also helps you manage your monthly cash flow with more flexibility and, as long as you pay off the balance prior to the next billing cycle, there is no interest charged in most cases.
Apprisen has some great resources for you to use when it comes to using credit wisely, such as healthy and responsible credit card use, and credit card terms and conditions.