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Experts: When Should You Open A New Credit Card (and When Should You Not)?

raise the credit card limit
raise the credit card limit

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Credit cards have many potential benefits, offering everything from cash back to lucrative sign-up bonus offers. If you’ve ever had a credit card, you probably receive offers in the mail tempting you with some of those offers.

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While credit card perks and bonuses can be tempting, that doesn’t mean you should always take the offer. In fact, there is a lot to think about before deciding to open your next credit card. Here’s what to consider before pulling the trigger on that piece of plastic (or in some cases, metal).What To Consider Before Opening a New Credit Card

Before you even look at credit card offers, you will have to determine why opening a credit card is (or isn’t) the right choice for you. To figure this out, you should consider your needs, goals, and your relationship with credit. This is because there are several types of credit cards that cater to different needs.Types of Credit Cards

Firstly, credit cards are not all the same. Credit cards can be broken into distinct categories such as cashback, rewards, travel and balance transfer credit cards.

“People should consider what value they want to receive from using a credit card,” says Ben Walker, credit card and travel expert/writer at FinanceBuzz. “In most cases, this would be to build credit, take advantage of a 0% introductory APR offer, or earn rewards in the form of points, miles, or cash back.”

Thus, a credit card you are considering should align with how you would actually use it. If you are looking to consolidate or pay off debt with a balance transfer card, it probably doesn’t make sense to accept an offer for a travel credit card.

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How you use credit is an important part of whether you should say “yes” to a credit card offer you receive. For example, if you have a history of struggling to use credit cards responsibly, it may be best to avoid them altogether. But even if you have been more modest in your credit card usage, it doesn’t mean you should sign up for every credit card that looks good.

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“Consumers should know that premium credit cards have very high-interest rates,” says John Taylor Garner, CEO & founder at Card Curator. “So, they should consider opening a premium credit card only if they can pay the balance off in full each month.”

These premium credit cards may have attractive rewards, but they aren’t worth as much as the interest you’ll accrue by carrying a balance, Garner says. If you do carry a balance but are reasonable with your credit card usage, you might want to consider simply picking whichever credit card has the lowest APR.How To Evaluate Credit Card Offers

Once you determine what kind of credit card you want and how you will use it, you can start evaluating offers. Something to keep in mind here is that even if credit card offers seem urgent, you shouldn’t treat them as a once-in-a-lifetime opportunity.

“Before applying for a new credit card, look at your financial circumstances and current spending habits — don’t be tempted to open a new credit card just because of the ‘limited time offering’ as there will always be another one,” says Einat Steklov, co-founder and co-CEO at Kashable.Approval Odds

Applying for a new credit card will lower your credit score temporarily, so it probably isn’t a good idea to open a new one if your approval odds are low. “You can check typical credit score requirements for different credit cards online. If your credit score is below the threshold, it likely doesn’t make sense to apply only to be rejected,” Walker says.How Does It Compare to Other Offers?

“A credit card might offer points you can redeem toward travel, but is it the best option for you?” Walker says. “Researching and comparing different credit card offers can help you narrow down your choices until you find the credit card that makes the most sense for you.”Should You Close Existing Credit Cards?

The most common recommendation here is to avoid closing credit cards in most cases. There are two main reasons for this: length of credit history and credit utilization. Closing a credit card will increase your credit utilization because you are decreasing the total amount of credit available to you. And by closing a credit card, you could be reducing your average credit age.

But still, there are cases when closing a credit card might make sense. For example, if you have a credit card with a high annual fee and it isn’t providing much value to you, it may not be worth keeping it open.

The other common suggestion is to downgrade the card to one with no annual fee. This way, you can keep the card on your credit report without paying the annual fee. Keep in mind that you should use the card periodically as some issuers will close cards that haven’t been used for a year or longer.When Shouldn’t You Open a New Credit Card?

Credit cards have their perks, but that doesn’t mean it’s always a good idea to get a new one. There are several scenarios in which you shouldn’t open a new credit card.

“People typically shouldn’t open a new credit card if they’ve recently opened or applied for multiple credit cards,” Walker says. “This is because lenders can see how many recent hard inquiries you’ve had and it might affect your approval odds for a new card or other type of credit product.”

Walker continued, explaining you shouldn’t apply for credit cards in rapid succession. “It’s often best to space out credit card applications every few months or more. Hard inquiries will eventually have less impact on your credit score and credit card issuers might see this behavior as less risky.”

Another scenario where you may want to put off opening a credit card is right before applying for financing, such as a mortgage. Applying for a new card may lower your credit score due to the hard inquiry on your credit report. That could lead to a higher interest rate on your mortgage, which could cost you thousands in the long run.

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This article originally appeared on GOBankingRates.Com: Experts: When Should You Open a New Credit Card (and When Should You Not)?

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