Opening a new credit card could be to your advantage under the right circumstances. For example, some credit cards offer generous signup bonuses, and opening a new one could put a pile of cash in your pocket. Plus, different cards offer different reward programs, and if you plan on doing a lot of holiday shopping, you might want to consider another credit card to make those purchases.
But in some cases, opening a new credit card can hurt you financially. If these scenarios apply to you, you might not want to open another credit card this year.
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1. Your current cards are at maximum
Sometimes people run out of credit cards because urgent expenses arise and they don’t have money in savings to cover those surprise costs. In other cases, maximum credit cards may indicate that these cards are not being closely managed. And if the latter applies to you, then getting another credit card will open the door to temptation – and could put you in more debt.
Better bet? Know your existing balances before adding them. Don’t open another card until your debt has gone down.
2. You already have a lot of credit cards
You may not have any balances on any of your credit cards. But you might still want to wait to get another one if you already have a lot of credit cards.
One factor in calculating your credit score is your credit mix, an assessment of the types of credit accounts you have opened. If you have too many credit cards, lenders may think that you are relying too much on those cards, even if you are not. As a result, you could be denied another type of loan or a new credit card.
3. You plan to apply for a mortgage and do not have the best credit score
You need a minimum credit score of 620 to qualify for a conventional mortgage, although some lenders have higher credit score requirements. If your score is only a notch above the minimum required and you hope to get a mortgage loan in 2021, you shouldn’t apply for new financing this year, including a credit card.
Whenever you complete a loan or credit card application, the issuer does a thorough investigation of your credit history. A single serious investigation is generally not considered terrible, as it usually only brings a drop of five to 10 points in your credit score. But if it’s a hit that you can’t afford right now, you better stick with whatever credit cards you have.
It can be tempting to take out a new credit card, especially when great offers arise. But in these situations, it’s best not to add another credit card to your mix.