Nowadays, the process of applying for a credit card has become very simple. In most cases, you just have to go to the credit card issuer’s website, fill in a simple form there, and receive a credit decision within seconds. That simplicity belies the fact that in applying for a credit card, you are making a major financial commitment. The credit card you applied for so easily could turn out to be the genesis of your financial ruin, if you are not careful. So it is very important to always remember that credit card application is not something to be taken lightly.
As a matter of fact, there are several key questions you need to ask yourself, before proceeding to apply for a credit card. In this article, we will be looking at those key questions you need to ask yourself before applying for a credit card, and why each of these questions is important.
Without any further ado, some of the questions you need to ask yourself before proceeding to apply for a credit card include:
- What is the credit card’s interest rate? Every time you make use of your credit card, what you are actually doing is borrowing money from the credit card’s issuer. This is money that the credit card issuer will expect to get back, with some good interest on top. It is important to have this basic fact at the back of your mind, while applying for a credit card. Only then will you understand that the credit card issuers aren’t doing you a favor when they approve you for credit card application. They stand to earn vast sums of money from you, in the long run, through the credit card. The biggest cost associated with a credit card is that of interest. It is therefore very important for you to take a close look at the credit card’s APR, in order to figure out whether the credit card is worth having. You need to understand what credit cards’ typical interest rates are like in your market. Then, if a particular credit card’s interest is too high, you may be better off not applying for it – however persuasive the issuers may be or however tempting the offer may be in other respects.
- What penalties and fees are associated with the credit card? There are some credit cards whose interest rates are okay, but whose fees and penalties are exploitative. Unlike the interest rates that are usually printed out boldly, these other penalties and fees are usually only indicated as a ‘by the way’ in the credit card’s agreement fine print. Yet they could come to haunt you. It is therefore important for you to read the fine print, to understand the applicable penalties and fees, which you may be subjected to at some point. You need to know what the typical/acceptable fees and penalties are, for similar credit cards in your market. Then if the penalties and fees for the card you are seeking to apply are too high/exploitative, you may be better off not applying for it.
- How does the credit card compare with others in the market? The most important thing here is to resist the temptation to apply for the very first credit card you come across. Another important thing is to resist the temptation to apply for a credit card just because the credit card’s issuer has sent you a flattering letter/email telling you that they have ‘prequalified’ you for the card. What you should do instead is undertake due diligence first, to understand how other credit cards in the market work. How are the costs associated with the card you are considering applying for as compared to other similar cards in the market? How are the terms and conditions for the credit card you are thinking of applying for as compared to the terms and conditions for other similar cards in the market? You should then only apply for a credit card if you are certain that it is the best or (at least one of the best) in market. In other words, before applying for any given credit card, you should know what its pros and cons are (compared to other cards in the market). All said and done, you need to ensure that while making a credit card application, you are doing so from an informed point of view. That is as opposed to making an application while ignorant of what is happening in the broader credit cards market.
- What exactly do you need the credit card for? In the market, you will find various credit cards meant to serve a wide variety of needs. There are, for instance, credit cards that are designed for people with poor credit who are trying to improve their credit scores. There are other credit cards designed for people who travel a lot. There are yet others that are designed for people who shop a lot and who seek to earn rewards… It is very important for you to understand your needs, and try to go for a credit card that is attuned to those specific needs. Otherwise you could end up paying dearly for the wrong choice of a credit card. Like if you take a case where, in spite of having a reasonably good credit score, you apply for one of the credit cards that are meant for folks with poor credit who are trying to improve their credit scores. You would then end up paying too much interest, because such cards are charged higher interest rates because they are deemed to be ‘riskier’. So you would end up paying much more than would have been the case if you had applied for an appropriate credit card.
- What other financial commitments do you have? This consideration would be important in trying to figure out whether you can afford the credit card. If, for instance, most of your income is going towards repaying some other loans you already have, and you go ahead to apply for a credit card, you may find yourself struggling with the credit card payments… You need to remember that if you apply for a credit card you can’t afford, you would be setting yourself up for financial struggles in the future. Therefore just because a credit card issuer has given you a credit card offer or ‘prequalified’ you for a credit card doesn’t meant that you should jump on it. On the contrary, you need to reflect deeply. Only take up the credit card offer if your financial position (your income vis a vis your other financial commitments) allows you to take up the credit card. And only if you really need it.
