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5 Rules to Follow When You Apply for Credit Cards

Credit Cards
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5 Rules to Follow When You Apply for Credit Cards

There’s much more to credit cards than simply signing up and swiping; there are rules you need to follow. The truth is, many people apply for credit cards without actually understanding how they work, which can lead to negative consequences like interest charges, fees and a damaged credit score.

Here are five rules to follow when you apply for credit cards to ensure your experience is a positive one.

Know when you last applied for a credit card

If it has been less than six months, you should probably hold off on applying for a new card — otherwise, your credit score could suffer.

That’s because new credit makes up 10% of your FICO credit score, and opening up too many credit accounts in a short period of time will drag down your score. New accounts also lower your average account age, which comprises 15% of your score.

MORE>> How to Pick the Best Credit Card for You: 4 Easy Steps

Know your financial situation

Your financial situation will likely have a big impact on the type of credit card you should apply for.

For example, if you have credit card debt, you should be thinking about which card is best to do a balance transfer, so you can consolidate your debt to a new card that comes with a lower interest rate or a 0% introductory interest period.

If you’re new to credit, you’re likely a better match for secured credit cards, which come with high approval rates. These cards will require an upfront cash deposit, but they can help you build up your credit to graduate to a traditional credit card.

Know your spending habits

Your spending behavior also influences the type of card you should get.

If you have a long work commute, you’re a much better fit for a gas rewards card than an airline credit card. If you have a large, hungry family to feed, you’ll want to choose a credit card with the highest possible grocery rewards. And if you travel overseas, you’ll want a card with zero foreign transaction fees and travel rewards.

Know the card’s terms and conditions 

Read all of the fine print that comes on the Cardholder Agreement document, so you know the exact terms and conditions of the card. This can help you avoid any potential issues or unwelcome surprises as a cardholder.

Here are some important questions to ask yourself before applying for a credit card:

  • What is the annual percentage rate (APR)? This refers to the yearly cost of credit on the card, and the lower, the better.
  • How long is the grace period? This is the length of time where you can pay off the entire amount charged on your credit card to avoid paying any interest.
  • What is the minimum monthly payment required on the card? The amount typically ranges between 2% and 4% of the outstanding balance, but varies by card. 
  • Does the card come with an annual fee, and is the fee truly worth it? For example, a card may come with a $50 annual fee, but if the rewards are really generous and you plan on spending enough, it can outweigh the fee.

Know your options

Don’t just settle for the first card you find. By doing a little comparison shopping online, you can discover a credit card that is both a great deal and a perfect match for your individual needs.

Figuring out which credit card to apply for and understanding key terms and conditions can be bewildering, but by following these five rules, you’ll have the power of knowledge in your corner.


Image via iStock.