If looking for ways to boost your credit score, a credit card may be a resource you can use to strengthen past credit mistakes.
However, it can also have the reverse effects and end up hurting your personal finances even more.
When used responsibly, it can be an asset to your financial situation.
Before applying for a new card, consider these financial issues first: What the Purpose Behind the New Credit Card? The only way a new account is going to be a useful tool for bouncing back from mistakes of the past is if it is used wisely.
Before applying for a new account, consider exactly why it's desired.
On the surface you may consider the it as a way to improve bad credit but the reality may be that more spending freedom is wanted.
Where Does Your Credit Stand Now? Before applying for a a new account, you will need to see where your credit rating currently stands.
Providers will rely on your past activity and current score in order to make decisions about approving your application.
They will also use the credit score to determine how much interest you will pay on purchases you make and on cash advances.
If your current score is not in a good range (720 or higher), you may have to pay a much higher interest rate than you can afford and also not have the options on a new card that are granted to those that have a good history background and a strong score.
How Will You Utilize the Card? If you pledge to use your card to boost a low score, it is advisable to have a plan for using your new account.
Many consumers will designate a specific purpose for card use such as for groceries or gasoline.
This allows card holders to use the card sparingly to prevent overspending while at the same time giving the card holder the most rewards benefits if applicable.
Do You Have the Means to Pay Off Monthly Balances? If you have figured out how to utilize your account to your financial advantage, you also need to ensure you have a plan for being able to afford and payoff your monthly balance in full.
Accounts meant to boost scores will require that the full balance put on the account be paid off in full each month to get the maximum benefits.
Additionally, carry balances over from one month to the next will mean you have to pay more than your purchases when interest is factored in.
If you're not employed or have debt loads you can barely manage now, getting a new card may not be the right option at this time.
How Much Credit Research Have You Done? Once you have contemplated how a credit card will be used to your benefit, it is important to do your research.
There are many cards available on the market.
Credit cards do not offer a one-size-fits-all solution for consumers.
Each person's lifestyle and spending habits are different and credit cards should be obtained based on their feasibility in their life.
Search and compare a variety of credit cards with consideration into their interest rates, rewards programs, penalties, monthly/annual fees, and the other aspects of owning a card before you commit to one card.
Be sure to read all of the fine print and ensure that the information is clear before signing up with a credit card provider.
If One Card Is Good...
Is More Better? Financial experts can agree that a credit card can help rebuild credit when used in a financially-savvy way.
However, many consumers mistakenly think that since one card can help bring up scores, it stands to reason that several accounts can really get the job done.
This is not the way things work in the real world.
While one or two cards can be a financial asset and an emergency backup when necessary, applying for more than one card in a short period of time will actually drop a score.
With every inquiry into your financial past by lenders reviewing your application, your score will lose points.
The more accounts you apply and get approval for will also change the fundamentals of your score.
The amount of credit you have versus the amount you use and the income you earn will change the calculation of your overall score.
If you're planning to utilize plastic to bring your score back up to good standing, be sure you consider the risks as well as the benefits.
If you've recently paid of mountains of debt and a new account may prove to be too much of a temptation, forgo getting the new account for the time being and keep paying open accounts on time each month.
Establish a structured budget and practice good spending habits before attempting to open a new account again.