You may think that the answer to this one is easy--especially if you're in the no credit is good credit camp--and say: "Heck no!"
But, depending on a variety of factors, you may be wrong.
While it's true that opening any type of new credit account could lower your score (especially if you have no credit or have very poor credit), there are some benefits to credit cards that could cause more good than harm in the long run.
And good credit is all about the long run.
A New Credit Card is a Good Idea If...
- You have a handful of accounts already to your name
- You're confident that you can make the payments
- You haven't recently opened other accounts (loans, cards, etc.)
How It Can Help Your Score
Opening a new credit card does a few things: it increases the total number of accounts to your name (you'd think this way a bad thing, but creditors like seeing that you have experience--within reason), it increases your total credit limit, and it gives you the opportunity to make timely payments and build a positive history.
Unrelated to score, some credit cards offer things like cashback or points that can later be used to help pay your bill if you ever find yourself having a tough month. Being smart about the kind of card you open can help you safeguard against unforeseen troubles.
A New Credit Card is Not a Good Idea If...
- You have no or very few open accounts on your history
- You don't think you'll be able to make payments
- You've opened one or more accounts (loans, cards, etc.) within the last year or so
How It Can Hurt Your Score
Opening a new credit card does a few other things, too: it causes a hard inquiry to show up on your report, it lowers the average age of your accounts (yes, that's a real factor in credit scores), and it could raise your total credit utilization if you start charging too many things to the new card right away. All of these things could impact your score in a negative way.
If you currently have very poor credit, or you've recently applied for a few different loans or lines of credit, you might not be able to afford to take a hard hit to your score. Consider other options.
A Secured Credit Card May Be the Better Option If...
- You want the benefits of a credit card
- You have some cash to put down
- You're confident in being able to make payments, or you're comfortable using your down payment to pay the full bill
How It'll Affect Your Score
A secured credit card works in a really interesting way. In order to open a card, you need to provide the money to cover your own credit limit--instead of the credit card company covering the capital. From there, you essentially borrow from and pay back your own money. But, instead of sitting in a bank like a savings account might, you get the benefit of making payments on an account and building a credit history--and getting some practice with a credit card in the real world.
It won't make a huge impact on your score, but it's a much better option than a conventional credit card for users who fall into the second category mentioned above.
Want to know more about how things like a secured credit card can help you out?
See our Tips to Build Up Your Credit History to learn more about smart options for you.
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Credit Tips
