When Should You Get A Credit Card?
Credit cards often get a bad reputation. Surely, any one of us have been told by our parents while growing up that reckless spending with a credit card is a surefire way to end up in debt. While there is truth to these wise words, credit cards have plenty of benefits as well. For one, credit cards are one of the most common ways you can build credit and finance large purchases.
Additionally, many come with additional perks, like the opportunity to earn cash back or miles. However, you should take a minute to consider whether now is the right time to add a new card to your wallet. Depending on your circumstances, it could be the best decision ever, or the worst.
Before you rush out to get a new credit card, do note that there are also several other ways to build credit than with a credit card. Becoming an authorised user on someone else’s credit card for example. You should take the time to evaluate your reason for opening an additional credit card, since the more you have, the more things you have to keep track of.
When should you get a credit card
If you want to open a credit card, these are the best times to apply:
When you turn 21
The minimum requirement to apply for a credit card (without a co-signer) is 21 years old, and have an annual income of RM24,000 per year. Once these conditions are met, getting yourself a credit card is a pretty good idea. This allows you to get a good start on building credit so you can establish a good credit history sooner rather than later.
It is also a good way to develop responsibility with your spending. As mentioned previously, you can get a credit card even earlier if one of your parent’s co-signs on it. Either way, getting a head start on building your credit history is never a bad thing.
You have good credit
If your credit is in good standing, meaning you have a credit score of around 700 or higher, then you are in a rather strong position and the banks view you as a trustworthy individual. This means that you will likely not face many issues when applying for another credit card.
You are looking to pay off debt
Paying off your debts can be a struggle. Therefore, the last thing on most people’s mind is to get another credit card while trying to settle debts. However, if you want to pay off credit card debt, a balance transfer credit card can help you rid yourself of debt faster and cheaper than keeping it on a high interest card. A credit card balance transfer process allows a credit card debtor to transfer their existing debts on a credit card to another credit card of another bank. The new bank that the debtor transfers the debt to will usually offer lower interest rates compared to the debtor’s original bank.
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When going on vacation
Travelling is a great way to spend your breaks. However, anything can go wrong at any time. Travel insurance helps to mitigate the financial issues that may result from something unexpected. Certain travel credit cards come with travel insurance included for issues such as trip delays and cancellations, lost luggage and more when you pay with said card. This is a great way to save on added insurance plans and offers you an extra layer of protection when you go abroad or even travel domestically.
When to NOT get a new credit card
Here are a few circumstances where a new credit card might be more trouble than it is worth:
When you are spending above your means
If you are just scraping by or you are spending more than you can really afford to, then getting a new credit card is not a great idea. While a line of credit can be helpful, it can pose a significant risk for people who spend more than they can afford to repay. This is especially true if you are already trying to pay off existing credit card debt. It can be harder to limit credit card spending compared to debit card or cash transactions since you don’t need to have the money available at the time of purchase. If you are not careful, you may end up overspending and falling deeper into debt.
You are unemployed
One of the big factors that influences a bank’s decision to grant you a credit card is your income. As such, a reduced income can affect your ability to qualify for a card since it shows you have limited funds to repay debt. If you have a reduced income or no income at all, applying for a new credit card can actually harm you.
If you’re not going to take full advantage of your perks
This relates more to getting a second credit card, but can apply to your first in some cases. If you are not going to take full advantage of your credit card’s rewards and perks, then you might as well not have one. For example, if you plan on taking a long, relaxing, overseas vacation every now and then, a travel rewards card might be worth it. However, if you only plan to travel just once in five years or so, then applying for the card might not be worth it. Your bank may decide to eventually close your card if it goes unused for too long, and you might even lose all your collected points thus far.
At the end of the day, getting another credit card can have some major benefits, only if the circumstances are right. Opening a credit card is a big decision and should not be made based solely on the latest promotions and welcome packages that are currently available.Weigh your current options and your financial situation carefully, because if you apply for a new credit card at the wrong time, you will quickly find it more troublesome than it is worth.
If you are planning to get a new credit card, but are unsure where to begin looking, you can try starting with iMoney’s Credit Card SmartSearch tool. It can connect you with some of the best deals and promotions currently available from licensed card issuers throughout the country.