Signs Of Bad Times For Opening A New Credit Card
People usually open a new credit card because it offers money back on purchases, more rewards, and travel miles. Moreover, a credit card allows you to make purchases now and pay later, which can get a little out of control.
If your credit utilization ratio exceeds 35%, you will have trouble paying your debts. Thinking that a 0% interest card will solve this problem is not the solution either. If you are already in debt, we recommend consolidating your debts and making one simple payment to improve your credit score.
Does this mean you can open a new credit card? No! These are a couple of reasons that determine whether you should open a new credit card.
You Are Overspending
Are you a shopaholic? If you spend without thought, you will push yourself into debt in just a month. According to studies, people with credit cards spend more than those paying with cash.
For example, you might plan a vacation even if you can’t afford one. Since this is a huge expense, you will likely spend much more than your salary limit. As a result, it’s highly likely you won’t be able to make the monthly payments because most of your money goes into paying the bills and rent, buying groceries, etc.
Why not create a budget to determine how to cut back on unnecessary expenses and save for future luxury buys? Try the Envelope Method for your budget to track your spending and avoid overspending.
You Are Planning to Buy a House
When you apply for a credit card, the bank or lender makes a hard inquiry into your credit score. While your score falls only by 5 to 10 points, based on how frequently you apply for a credit card, the combined score will affect your future mortgage chances.
Nowadays, lenders are ready to give a loan even on a bad credit score. However, such loans come with a high-interest rate and private mortgage insurance.
You Are In Debt
Let’s say you are still paying your student loan and a small business loan you took out for a startup. You already have two credit cards and are planning to get a third one for personal expenses. Soon, your spending gets out of control, and you are taking on another debt.
Do you understand where we are going with this? You are already in debt, so why would you want to pile up on it?
Remember, the more credit cards you open, the more you will pay by the end of the month. If you default on one credit card, the balance will increase due to the interest rate. In the long run, this will prove to be too expensive. Moreover, a single missed payment will affect your credit score greatly and make it possible for you to get an affordable loan in the future.
So, why put your dreams of becoming a homeowner or starting a business at risk for a new credit card that will only bring you fleeting happiness and then hurl you into debt?
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