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There are several reasons to apply for a new credit card, one of them being to increase the amount of available credit you have at your disposal. Depending on your financial situation and spending habits, getting an additional credit card can either help or hurt your financial health. In some cases, it might make more sense to ask for a credit limit increase on an existing card instead of applying for a new one.
Here's what to consider before you make your decision on how to proceed.
Should You Get a New Credit Card to Have More Available Credit?
Depending on your situation, goals and financial habits, there are both potential benefits and drawbacks to adding a new credit card to your wallet. Here's what to keep in mind.
Pros of Getting a New Credit Card
- More spending power: If you're just starting to build credit, you may not have a large credit limit. Adding another credit card can allow you to use credit more often and can also give you more flexibility with large purchases and emergency expenses.
- Can improve credit utilization rate: Your credit utilization rate, also called credit usage, is the percentage of your available credit that you're using at a given time. If you get a new card, you'll increase your available credit, which can help drive down your utilization rate. In turn, your credit score may improve.
- New card benefits: While it may not be your priority, getting a new credit card could give you access to new card benefits, such as a welcome bonus and new rewards rates. Using multiple cards for everyday purchases could help you make the most of each card's features.
Cons of Getting a New Credit Card
- Potential for more debt: If you have a history of overspending, adding more available credit could result in more credit card debt, which could mean higher monthly payments and more interest charges.
- May not help your credit: If you use your additional credit to increase your spending, getting a new card may not ultimately reduce your utilization rate. Additionally, when you open a new credit card, it'll decrease the average age of your credit accounts, which can potentially lower your credit score.
- Hard credit inquiry: When you apply for a new credit card, the card issuer will typically run a hard credit inquiry to check your credit reports and determine your eligibility. While each additional inquiry won't have a significant impact on your credit score, multiple inquiries in a short period of time could have a negative compounding effect.
Should You Ask for a Credit Limit Increase on Your Existing Cards?
Depending on your situation, it may make more sense to request a credit line increase on an existing card than to submit a credit card application.
This can be particularly beneficial if your existing card's issuer doesn't run a hard inquiry when you apply for a credit limit increase or if you don't want to worry about the potential risks or complications associated with adding another card to your wallet. It also won't affect the average age of your credit accounts.
But if you want to take advantage of a new card's benefits, or you're not certain your current card issuer will give you a large enough increase—or one at all—you may be better off applying for a new card.
How to Use a Credit Card to Improve Your Credit
Increasing your available credit is just one way you can use a credit card to help improve your credit score. Other approaches include:
- Paying your bill on time every month and in full so you can demonstrate a good payment history, which is the most important factor of your credit score
- Monitoring your spending to keep your utilization rate low
- Making multiple payments per month to keep your utilization rate low
- Regularly using your credit card, since you could face account closure if your card is inactive
When to Avoid Getting a New Credit Card
While there are some clear benefits to getting a new credit card, it's not always the best idea, particularly in the following situations:
- You've struggled with overspending in the past
- You regularly carry a balance from month to month
- Your credit isn't in good enough shape to qualify for a card with good benefits
- You're planning on applying for a mortgage soon and want to keep your credit reports free from new credit accounts
- You've applied for a different credit card in the past few months
- You have trouble managing multiple accounts and due dates
Instead of applying for your own credit card, consider asking a loved one with good credit to add you as an authorized user on their credit card. As an authorized user, you can take advantage of the primary account holder's positive payment history, which may help your credit score.
Improve Your Credit to Increase Your Odds of Getting Approved
Whether you're thinking about applying for a credit limit increase or a new credit card altogether, your credit history will play a large role in the card issuer's decision. Before you submit an application, check your credit score and credit report to understand your current situation and whether you need to make improvements.
Then, take action based on the information you find. Potential options include getting caught up on past-due payments, paying down existing credit card balances, disputing inaccurate credit report information and more.
While card issuers will also look at your income, account history and other factors, improving your credit can make a significant difference in your approval odds.