When Is It a Good Idea To Open a New Credit Card?

Many people enjoy the convenience and safety of credit cards. However, this convenience can set a nasty trap and lead to a search for debt relief. The key to deciding whether you should open a new credit card is to first determine what you’re trying to accomplish. Then it’s easier to figure out if a new card can get you there. Learn what to consider if a new credit card is in your future—and find out about your other options, too.

7 Reasons to Open a New Credit Card

Credit cards are big business, and you may get offers every week in the mail, online, by text, or through social media. Before clicking the “Apply Now!” button, figure out what needs that card is supposed to meet and if it’s the best option. 

The most common credit card types are:

• Secured credit cards. You have to make a cash deposit, but it’ll be returned to you after a period of responsible card use. 

• Student credit cards. These are designed for students and people newer to credit cards. If you’re under 21, you’ll need to show proof of income or have a cosigner.

• Second-chance credit cards. These may be secured or unsecured and are designed to help you establish or reestablish credit history.

• Store credit cards. These traditionally have less-stringent approval criteria and are limited in how they can be used. 

• Traditional credit cards. You qualify based on your creditworthiness, and you don’t have to offer a security deposit. You’ll need to pay at least the minimum payment by the due date each month. Most of the time, if you pay the balance by the due date, you can avoid interest charges.

The right type for you depends on your situation—your employment, education, and previous credit experience. 

Here are seven situations where you might consider applying for a new card. 

Freedom Debt Relief isn't a Credit Repair Organization and doesn't provide, or offer, services or advice to repair, modify, or improve your credit.

1. Build credit

Credit cards help you establish a credit score so future lenders will see your track record. Charging small amounts each month and paying them off builds a history of on-time payments on your credit report. You don't need to commit to a high payment and a large loan—like you might with auto financing. It’s a low-stakes way to get used to managing credit.

2. Reduce credit utilization to raise your credit score

One of the most influential factors in credit scoring is credit utilization, also called amounts owed or balance to limit. It’s the amount you owe on your credit lines divided by your credit limits. 

Generally speaking, lower utilization leads to higher scores (and vice versa). The best utilization is zero. The worst is 100%. There’s no magic line where utilization goes from being good to bad. But you could start to notice a negative effect on your credit score once your utilization exceeds 25%-35%. After that, the higher it is, the more points you’ll lose. Any time you max out a credit card, even if you have others that aren’t maxed out, your credit score is likely to suffer.

Utilization is calculated for each card and for your credit card use overall. Opening a new credit card could help you if you don’t use the new credit limit. 

In other words, if you currently have a credit card with a $900 balance and a $1,000 credit limit, your utilization is 90%. If you open a new credit card that also has a $1,000 limit but you don’t make any transactions, your overall utilization drops to 45%.

900 / 1,000 = 90%

900 / 2,000 = 45%

Having one card close to maxed out is still going to hurt you. So it’s worth focusing your efforts (and any extra money) on paying down your $900 balance. 

Lowering your credit card balances is an excellent strategy to raise your credit score as long as it makes sense financially. If you’re paying down debt, avoid cards with annual fees. And don’t open new credit accounts if you’re not sure you can successfully avoid using them.

3. Cover emergencies

Everyone should have an emergency fund. However, saving the amount you need can be difficult, especially if your regular expenses consume much of your income. One way to protect yourself from unexpected costs until you can save enough is an emergency credit card. Keep it in reserve and unused unless you need it. 

Shop carefully to get the best interest rate you qualify for, and consider the minimum payment. True emergencies are valid reasons to charge for something you can’t pay off immediately. If you must pay for a necessary car repair, it’s best if you can avoid a high interest rate and a payment you can’t afford.

4. Spend safely and conveniently

Credit cards make it safer and easier to shop online, pay for gas, or get through a self-checkout quickly. You can make purchases in other countries without exchanging currency. Your purchases may get extra protection or extended warranties for free. And all isn't lost if someone steals your wallet, because credit cards offer robust fraud protections.  

If you’re just looking for convenience and don’t plan to carry a balance, choose a card with the perks of your choice: cash back, rewards, extra purchase protection, club memberships, and so on. Watch out for fees. You can get perks without paying an annual fee.

5. Take advantage of rewards and welcome bonuses

Some reward credit card issuers are very generous with their bonuses for new customers. If you’re comfortable managing your credit—and the cash back, travel, or other rewards are especially compelling—go for it. 

Here are a few guidelines: 

• Make sure the bonus isn’t offset by expensive fees.

• Review the rewards to make sure they fit your spending habits and lifestyle. 

• Be choosy when you apply, since every application could ding your credit. 

• Maximize the benefits by paying off your balance in full every month. If you don’t, the interest you pay is almost sure to be more than the rewards you’ll earn. 

6. Refinance or consolidate existing debt

What if you had to take out a fast but expensive personal loan? Or you have several credit card balances with high interest rates? Maybe your credit score has improved to the point that you’re eligible for premium interest rates or a zero-percent offer.

Balance transfer credit cards can help you pay off your debts faster by reducing or eliminating interest, often for six to 21 months. You can use them to make a serious dent in your debt. 

Read the fine print and understand costs like balance transfer fees, which offset some of your savings. Know how long you have at the introductory rate and what happens when that period expires. If you don’t pay off the balance within the intro period, you’ll start paying the card’s regular interest rate.

7. Finance a large purchase

You have several ways to pay for a large purchase over time. You might take out a personal loan. Seller financing might be offered in some cases. For example, furniture stores often have financing. Depending on your credit standing and the cost of the purchase, opening a new credit card with a zero-interest introductory offer could be an option too. If you can pay off the purchase by the time that period ends, you won’t pay interest. 

To ensure you pay it off without interest, divide the total charged to the card by the number of months your introductory period lasts, and you’ll come up with the amount to pay on the card every month. If you’ve charged $1,200 to the card and have 12 months to pay it off without interest, you’ll pay $100 a month. 

3 Reasons Not to Open a New Credit card

The reasons for getting a new card can be compelling, but they might not apply to you. And there may be excellent reasons to avoid applying for a new credit card. 

1. You have several cards already

According to credit reporting agency Equifax, most people only need two or three credit cards to have excellent credit. Equifax lists “too many accounts with balances” as a common reason for low credit scores. They also note that the reason most people shouldn’t have too many cards is that the accounts become difficult to manage. That could increase the odds of missing a payment or running up debt. 

Another issue is the number of credit inquiries on your credit report. Every time you apply for a new account, the issuer performs a hard credit check and you could lose a few points from your credit score. It takes about a year to recover those points. 

Also, applying for too many cards too quickly can scare lenders. That’s because consumers with many inquiries are more likely to default on loans or file for bankruptcy. 

2. You plan to apply for a loan

If you have a good credit score and history, don't open new cards if you plan to apply for a mortgage, auto financing, or business loan in the next year. Every credit inquiry lowers your score. And having access to too much credit can raise lender red flags. They could think you’re at risk for running up debt that will leave you unable to afford your loan payments.  

3. Your balances are increasing

It’s best to avoid carrying credit card balances from month to month because it’s an expensive way to pay for purchases. And credit card interest rates are variable. When interest rates rise, and they do go up periodically, your payments could become unaffordable. Credit charge interest is charged daily, and compounds over time. Minimum payments are set very low. Your balances could balloon as time goes on. 

When your balances are increasing, it can seem appealing to apply for more credit so you can keep on spending. However, that’s not a sustainable practice. You need to reduce your spending and step up your credit card repayment strategy, or perhaps seek help in the form of credit card debt relief.  

How Does Opening a New Credit Card Affect Your Credit?

The impact of a new credit card depends on your situation. Here are the two most common side effects when you apply for a new credit card.

Applications usually hurt your credit

When you apply for new credit, the issuer pulls your credit report. That’s a hard credit inquiry. These can temporarily knock a few points off your credit score. Don’t apply for new cards too often, and don’t apply if you’re not sure you’ll qualify. 

Applying when you’re pre-approved can be useful, because pre-approval usually means you have a decent chance of getting a card. 

Having more available credit helps

Increasing your available credit by adding a new card lowers your credit utilization ratio. Credit utilization is a big deal where your credit score is concerned. It’s best to have credit available but not use it much.  

Alternatives to Opening a New Credit Card

You may need to manage payments, build credit, or refinance debt, but aren’t sure you want to open a new credit card. Here are some alternatives. 

Prepaid cards work like credit cards without the debt risk

You load money onto a prepaid card. You can only spend what you've loaded. That makes it a safe way to manage your spending. Prepaid cards don't build credit. Still, they’re a secure way to make payments with plastic.

Become an authorized user

Being an authorized user lets you benefit from the primary cardholder’s good credit. Their positive payment history can appear on your credit report. It’s a simple way to boost your credit without taking on the responsibility of a new card.

Consider secured credit cards

Secured cards differ from traditional credit cards. One main difference is, the card issuer holds your cash deposit as collateral in case you don’t repay your debt. Other details include:

• Your credit limit is often equal to the amount of your deposit 

• You make payments toward your balance just like you would with a traditional credit card 

This system allows people with poor credit to qualify for the card and build or rebuild credit. If you make all of your payments on time, you could apply for a traditional credit card after six to 12 months and ask for your deposit back.

Look into personal loans for debt consolidation

If you’re thinking of debt consolidation, a balance transfer card isn’t your only option. Depending on your financial profile, it might not even be your best one. 

Personal loans don’t come with 0% interest, like some balance transfer credit cards. But you may still pay less interest on a personal loan than on your existing credit balances, and you’ll get fixed payments and a fixed payoff date, to boot.  

Credit card companies are always hoping you’ll apply for their products, but it’s a better idea to assess your needs and financial well-being before you click that button. A new credit card can help your finances—but it could hurt them, too. So tread lightly.