Applying for a credit card is dangerously easy. It only takes a few minutes, whether you do it online or fill out a paper form. But it’s a serious financial decision that should not be undertaken lightly.
If you’re a candidate for a credit card for people with bad credit, that’s even more reason to proceed with caution. Every time you apply for a credit card, your credit score takes a five-point hit. That’s no big deal if your credit is a healthy 750, but can make quite a difference if you’re trying to rebuild your credit from the low 600s or below.
Another part of your credit score—15%—is determined by the length of your credit history, which is calculated by looking across all your accounts to see how long they’ve been open. That means opening a new account brings down the average age of your accounts, and that can hurt your score.
Credit cards for people with poor credit serve an important purpose. Their value is not in the buying power they extend, but in the opportunity they represent to rebuild your credit. The best way to rebuild credit is to pay your bills on time and reduce the amount of available credit you’re using. That’s why your first move, if you already have credit card accounts open, is to make it an ingrained habit to pay the bills on time. Paying down debt is also very important, both for your credit score and for your overall financial well-being.
But if you don’t have any credit cards at all, it may be worth the small hit to your score to apply for a bad credit credit card. Once you’re approved, you must exercise iron control and charge no more than a third of the card’s available credit at a time. If you need to spend more than that in a given month, pay off the balance early so your new purchases don’t push your balance above that magic number even temporarily.
The bottom line is that you shouldn’t apply for credit cards you don’t need. Your score will take a hit when you hit the “apply” button, and cards for people with bad credit don’t tend to offer high credit limits, generous rewards or low fees anyway. So you should only apply for such a card if you really need one—especially if you don’t have any credit cards at all.
Caution image via Shutterstock.
The post When to Apply for a Credit Card for Bad Credit appeared first on NerdWallet Credit Card Blog.
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