This post is sponsored by Lexington Law, thank you for supporting brands who support TCM. As always, all thoughts, opinions, experiences, and advice are my own.
I know I’m writing this post in July, but July means back to school time is right around the corner, which means that it’s time for back to school shopping, and then it’s time to think about Halloween costumes, and then Thanksgiving, and before we know it the holidays are upon us and it’s New Years! So basically, what I’m trying to say is, you’re about to be inundated with requests to apply for a new credit card!
I know how tempting it can be to open those in-store credit cards during the holiday time (or any time really) when they are flaunting their massive discount for signing up and you’ve just loaded up the entire patio section in hopes of turning your backyard into a resort this summer… but resist until you feel confident you understand what you’re signing up for. When I polled you all on Insta-stories earlier this year, a lot of you didn’t feel confident when it came to knowing whether or not it was a smart move to open up a new credit card. So today we I’m sharing the key things you need to know before applying for a new credit card!
What You Need To Know Before Applying For A New Credit Card
How will opening a new credit card impact me?
Applying for a new credit card acts as a hard inquiry. Meaning it will drive your credit score down. This is really important because you want to make sure you'll get approved for the new line of credit before applying. Otherwise you're just hurting your credit score; no thank you!
Depending on what range your credit score is in a hard inquiry can impact you by as much as 100 points! This is also important to keep in mind because you'll want to space out how frequently you apply for new credit cards. In theory, you could destroy your credit score simply by applying for a ton of credit cards in a brief period of time – even if you never used said cards – because all the hard inquiries add up! The good news? Hard inquiries only stick with you for two years on your credit report, and they're weighted, meaning each month they impact you less and less.
What terms do I need to understand in the credit card application?
Knowledge is power when it comes to your finances. If there's a term you don't understand, look it up. Never agree to something that you don't 100% understand.
Here is a list of the common terms you'll come across when applying for a new credit card:
- Annual percentage rate (APR): This is how much interest you'll pay on certain things annually. For instance, APR on purchases is the interest you'll pay on the outstanding balance from your purchases if you don't pay them off in full each month. APR for cash advances is how much you'll pay in interest if you borrow cash against your credit card balance. For balance transfers, APR is how much you'll pay if you move the outstanding balance from one credit card to another. APR for balance transfers usually start at 0% and then go up to a really high percentage after a period of time.
- Annual fee — This is how much you'll pay annually to have the card. It's typically only associated with rewards cards.
- Balance transfer fee — Typically a 3 to 5% fee per balance transfer when you transfer a balance onto your card
- Cash advance fee — Aside from paying interest on a cash advance, you'll typically also pay a flat fee ranging between 3-5% for the transaction.
- Penalty fees — This is usually a fixed fee the card issuer will charge you with if you go over your credit limit or make a late payment.
- Transaction fee — Also charged in addition to your APRs, this is when a specific type of transaction has a fee on top. Typically you'll only come across this if you're dealing with a foreign vendor. In which case you'll want to pay attention to your foreign transaction fees for any transaction not occurring in the U.S. dollar.
For more credit terms demystified, check out this article from Lexington Law Firm.
What are the fees for opening a new credit card?
Now that you know all your new terminology from the previous question, you know exactly what to look for when understanding the fees associated with opening a new credit card. Not all credit cards will cost you when opening (other than the impact to your credit score). But some credit cards will come with fees. Whether that's an annual fee (often associated with rewards credit cards) or a balance transfer fee if you're trying to move a larger high interest balance from one card to another.
The fees vary widely and it's important to understand what they are upon opening, and what you'll be on the hook for in the future. For instance, some cards will wave the annual fee the first year, but then hit you with $500 annually every year thereafter. Another example, you may pay 0% interest on the amount you transfer from another card for the first year, but then you are hit with 30% APR on whatever is left after that first year.
What information do I need to have together before applying for a new credit card?
Before applying for a new credit card (or a new line of credit in general) you'll want to pull your credit report and check what your credit score is. For help understanding your credit report, check out this article from Lexington Law Firm. Before applying for a new credit card, you'll want to make sure you credit score matches their minimum requirements. Secondly, you'll want to check your credit report for any errors. Common errors include accounts showing up that aren't yours, items being reported as late or delinquent when they aren't, and accounts showing as still open, when you've closed them. If you find errors on your credit report, reach out to Lexington Law Firm for a free consultation here. They specialize in credit repair which means they are the professionals at helping their clients with unfair, inaccurate, or unverified items on their credit report.
Aside from that, you'll want to make sure you have the information necessary to fill out the new credit card application. Every credit card issuer is different, but typically you can expect them to ask you the usual types of questions. Here's a list of the information you'll want to have on hand when applying for a new credit card:
- Address (and when you took up residence there)
- Phone number
- Date of birth
- Social Security number
- Rent or own where you're living
- Country of citizenship
- Country of residence
- Employment status
- Total annual income
- Income sources
What if I'm prequalified for a new credit card?
Just because you're pre-qualified for a new credit card, does not mean you are approved for a new credit card. Prequalification simply means you meet some key criteria the issuer is looking for. They don't have access to all of your information though, so they may still reject you. For instance, maybe the credit card issuer has a certain income level threshold they expect their cardholders to have – if you don't meet that income level (something they'll only know when you're filling in the application), they can still deny you.
The two important things to remember when it comes time to apply for a new credit card are: 1) why? and 2) what's the impact? If you want to open a new credit card because you'll get a quick discount, maybe skip it. That impulsive decision could hurt your credit score and land you with a high interest rate credit card you forget to pay the balance on, and become a vicious cycle.
On the other hand, if you're looking to open the credit card to increase your credit limits, thereby dropping your credit utilization ratio and potentially improving your credit score, or give you better access to rewards, then it may make sense. Consider all of the above factors. If you have bad credit and feel unsure about how to improve your situation, call the professionals at Lexington Law Firm here.