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When to get a credit card

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Should you get a credit card, even if you don’t need one? In short, it depends.

It depends on many factors, including your current level of debt, the income you earn, and the amount of credit you currently have available. That said, you should never apply for a card you don’t want just to get credit card rewards. Applying for a credit card may not be a good idea if you don’t have a good reason to apply for one.

If you are looking to build credit, a credit card may be the right next step in your credit journey. However, if you’re still deciding whether you should apply for a credit card right away, consider these five reasons.

Your credit can improve
If you’re looking to improve your credit, a credit card can help, as long as you can use it responsibly. Because credit card applications are considered a difficult inquiry, applying may temporarily lower your credit score, but if you handle your credit responsibly, it should increase over time.

Five factors go into your FICO credit score.

Delinquent payments: 35%. Missed payments will lower your credit score. However, if you make at least the minimum payment on time (preferably in full), then your credit score should increase over time.
Delinquent payments: 30%. This is your credit utilization ratio, or the total amount of credit you use divided by your total credit limit. For example, if you have a credit card with a balance of $500 and a credit limit of $2,000, your credit utilization rate would be 25%. It is recommended that you use a utilization rate of no more than 30%, but preferably less. Keeping your utilization rate low will also help improve your credit score.
Length of credit history: 15%. This is the amount of time you have access to all your credit accounts. In general, the longer you have access to credit, the better your credit score will be, but applying for new credit may temporarily lower your score.
Credit Portfolio: 10%. This is a combination of the types of credit accounts you can access. There are types of credit cards, but there are also types of student loans, mortgages and other types of credit.
New Credit: 10%. This takes into account recent hard inquiries to your account. Applying for too much credit at once can hurt your credit score.
Understanding the factors that make up your credit score can help you use credit cards in a way that improves your credit score over time. However, if you fail to use your credit card responsibly, the opposite is also true: you can also further damage your credit.”

You need help building credit from the ground up
Credit cards are a great way to help people with no credit history build a good credit history. While there are several ways to build a good credit history, credit cards are one of the easiest and quickest ways to do so. While this may sound counterintuitive considering that so many credit cards require a good or even excellent credit score to apply, there are a handful of credit cards that can meet the needs of individuals with no credit score. Here are our picks for the best credit cards for those without a credit history.

You want to spread your credit
Having multiple credits on your report can help improve your credit score and help lenders see you as a responsible borrower. A credit portfolio accounts for 10% of your FICO score. Multiple lines of credit can help lenders see you as someone who can manage debt over time.

You want to finance large purchases
Zero percent APR periods allow you to avoid paying interest on purchases for a limited period of time. Some credit cards offer 0% APR for 12 months, while others may offer APRs for up to 21 months. Zero-interest credit cards make it easier to fund large purchases or unexpected medical expenses without adding to your balance.

However, the key to making sure the 0% APR period works in your favor is to pay off the balance before the period ends. By doing so, you never have to pay any interest on that particular purchase. Here are our picks for the best 0% interest credit cards.

You want to earn rewards
Rewards credit cards offer great benefits in the form of cash back, miles or points for everyday purchases. However, earning rewards with a credit card isn’t always worth the risk. First, if you’re considering a rewards credit card and you don’t have an established credit history, you may not be approved.

The best rewards credit cards may require you to have good or excellent credit. It’s only a good idea to use a credit card to accumulate rewards if you pay your balance in full each month. If you can’t manage your balance, the rewards you may earn will not exceed the interest accrued on your balance.

When not to get a credit card
Many people avoid applying for credit cards altogether because they don’t have a good credit score – or no credit score at all. This is short-sighted, however, because credit cards can help you build a better credit score, even if you’re told you’re not ready.

However, while credit cards are useful for some consumers, they are not always the best choice. Let’s consider some situations where credit cards simply aren’t a good option.

You can’t make ends meet
While credit cards offer some benefits, they also pose a risk for individuals who spend more than they can actually afford. It’s easy to fall into credit card debt simply by letting your balance get out of control. If you can treat your credit cards like cash and pay your bills in full each month, you’re on the right track.

Payment history makes up 35% of your FICO credit score, making it the most important factor when calculating your credit score. If you miss a payment, you’ll not only pay significant interest charges, but you’ll also damage your credit.

You have outstanding debt on an existing credit card
If you can’t handle an outstanding balance on an existing line of credit, then adding it to the mix may not be the best idea. Credit cards are not a band-aid that can help with existing problems.

However, if you are struggling to deal with a balance on an existing credit card, consider a balance transfer. This is the only situation where getting another credit card might make sense because you are transferring a balance from one account to another. Many times, balance transfer credit cards will offer cardholders an introductory 0% APR for a limited period of time (usually 12 to 21 months).

Keep in mind that there are fees for balance transfers (usually between 3% and 5%), but with the right card, you can save a lot of money on interest while keeping your debt under control.

You’ve recently been declined for a credit card
Every time you apply for a new credit card, the lender will run a credit check or hard inquiry on your credit report. A credit check will temporarily affect your credit score, usually by only a few points. However, if you keep applying for new lines of credit, your credit score will take a bigger hit. If you have recently been declined or applied for more than one credit card, take a step back and consider improving your credit score before applying again.

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