Should you get a credit card?

Whether it’s your first or fourth time applying for a credit card, opting for a new card is a decision that will impact your financial health in one way or another. Having a credit card can be a boon when it comes to building or maintaining a good credit history, but it can also be a gateway to debt, depending on what type of spender you are.

The decision to apply for a credit card shouldn’t come without a careful analysis of your personal financial spending habits and goals, because your credit card history isn’t something you can erase down the road once you start to establish or re-establish your credit.

Also, with credit card interest rates as high as they are, if you do get a card you should be careful not to carry a balance on it or engage in irresponsible spending. If you do rack up a balance, you could get mired in debt and hurt your credit score and financial health.

How credit cards are useful

Used responsibly, a credit card can help you build the credit history you need to access financial support. According to Rasha Katabi, CEO and founder of Brim Financial. “Whether it’s in a mortgage or a loan or a business loan — whatever it is that you require in terms of financial support to build your business, your life and your wealth — it’s important to have credentials in the world of credit.”

Credit cards can also help you save (and earn) money, especially if you opt for one that offers cash back, points or miles in some of the categories in which you spend the most heavily. “Find a credit card that best suits your spending habits and has the best rewards program for your priorities in life,” said Kelan Kline, co-founder of The Savvy Couple, a personal finance blog.

Credit cards can be valuable tools in navigating and managing your finances. Here are a few things to consider before beginning or deepening your credit card journey.

When does getting a credit card make sense?

If you want to build or rebuild credit history

Without sufficient credit history, lenders will likely see you as a higher risk, and this may result in denial of that loan or mortgage you want. Before deciding on a credit card or being persuaded by a large sign-up bonus, you should be aware of your credit score and financial standing. Using a credit card responsibly can be an efficient way to boost your credit score or establish the groundwork for credit history.

If you have limited or no credit, consider a secured credit card. In order to compensate for your lack of credit, lenders will require you to submit an initial deposit that will set the basis for your line of credit or what you’ll be able to borrow. Your payment history may then be reported to the three major credit reporting bureaus — Equifax, Experian and TransUnion.

How to build or rebuild credit with a credit card

In order to see your FICO score increase, it’s important to make your payments on time and in full and to keep your credit utilization ratio below 10 percent, Beverly Harzog, credit card expert for U.S. News & World Report advises.

Although the “golden rule” is to aim for a credit utilization of around 30 percent, she says people with high credit scores keep it around 10 percent. “You know, use a low utilization ratio — below 10 percent, really — to boost your score, and pay your bill in full and on time,” Harzog says. “Do that for seven or eight months and you’re going to see some progress.”

Some issuers, like Discover and Capital One, offer pathways to help people transition from a secured card to an unsecured card after six months to a year of responsible use.

If you need help financing a purchase or paying off debt

Some credit cards offer a 0 percent intro APR period on purchases and balance transfers for a limited time. If you need some leeway when it comes to financing a major purchase, or if you know you’re going to need some extra cushioning in paying off a debt, you might want to consider one of them.

The intro offer will allow you to pay off your debt or major purchase in installments for the duration of the introductory period. “You’ve been able to get a loan interest-free, basically,” Harzog says.

If you want to get rewarded for your spending

Using a cash back or travel rewards card responsibly can also help save you money. Think about how you spend your money in order to garner rewards for the things you purchase the most. Maybe you want a card that rewards the basics, like gas or groceries, with simple cash back. Or maybe you travel often for work and want to rack up points or miles with an airline credit card.

You don’t necessarily need an excellent credit score to qualify for a rewards credit card. Banks and creditors consider a FICO score of 660 to 719 as being in the prime range that could help you land some of the best credit cards out there. You likely won’t see the lowest interest rates or highest credit limits with this type of score, but if you set a budget and plan to pay your bills on time, you could be leaving money on the table by not using a rewards credit card.

“My wife and I have been able to completely pay for a handful of vacations over the last few years by simply using a travel rewards card each month,” Kline said. “These are vacations we might not have even gone on if they were not paid for by travel rewards.”

If you want added payment security

Debit cards are usually good for those who need help sticking to a budget, as the funds drawn from debit accounts are pulled from your money. However, if your debit account is compromised or if fraudulent charges are made, the process of recovering your funds can get a little trickier. The Electronic Fund Transfer Act (EFTA) ensures you zero liability for fraudulent charges made on your debit card if you report the fraud within a 60-day window. If you wait more than 60 days, you could be footing the entire bill for that fraudulent charge.

While it’s nice knowing you have some protections, bear in mind that banks and credit unions may require written confirmation of the error and have to complete the investigation within 10 business days. This means you could be lacking those funds for almost two weeks.

You won’t have to deal with these types of pains if you find a fraudulent charge on your credit card. Your real money isn’t on the line, and issuers typically offer some form of zero liability policy on fraudulent credit card charges. “If you find suspicious charges, you report them, they get wiped off, and you don’t have to pay for it,” says Ted Rossman, senior industry analyst at Bankrate.

There are federal protections in place for credit card fraud, too. The Fair Credit Billing Act (FCBA) caps your liability on charges you didn’t make at $50. You still have a 60-day window to report, but you’re not dealing with your immediate funds in the meantime.

When does getting a credit card not make sense?

If you want to augment funds

Generally speaking, applying for more credit to get out of debt can put you in the midst of a catch-22.

According to Colin Walsh, CEO and co-founder of app-based banking service Varo Money, “If you’re feeling like you’re getting the credit card because you need that little bit of extra cushion, or you want to borrow against it, and you’re seeing it as a form of lending, I would be a little bit more cautious of that.”

Knowing how responsible a spender you are can also let you know whether you’re ready.

“Now, there is one other situation where you should never get a credit card,” Harzog said. “And that’s if you can’t use cards responsibly. There’s no shame in that. We all have weaknesses, so just be honest, and if that’s the situation, you should not use a credit card.”

Impulse buying can lead to carrying hefty balances. In turn, hefty balances that aren’t paid in full can accrue a substantial amount of interest.

If you’ve recently applied for a major line of credit

You should also avoid applying for a new credit card if you’ve recently placed or plan to place another major credit application. This means if you’re refinancing your house, buying a new car or taking out some form of loan — you’ll want to avoid a credit card application and the added hard inquiry it will place on your credit score.

Not only will applying for a credit card around the same time as another loan decrease your credit score, but it’ll also make lenders suspicious of you. “A lender who is trying to approve you for a mortgage might see that and think, ‘Why is this person also applying for a credit card? Are they expecting to have money problems if I give them this mortgage?’ All of these things can go through lenders’ minds,” Harzog said.

Avoid taking on too many cards

Having more than one credit card can help minimize your credit utilization ratio. On the other hand, according to Walsh, having lots of credit cards “puts a lot of temptation in your wallet.” Deciding how many credit cards you should have, again, involves an honest analysis of your budget and goals.

You’ll want to avoid applying for multiple cards at once, as this will impact your credit score. “If you’re not planning on applying for major credit any time soon, let’s say in the next year, you could probably get two cards and spread it out over four months,” Harzog said.

The bottom line

Opening a credit card account could be one step further toward reaching your financial and personal goals. But managing it requires diligence and an analysis of your resources and spending habits. And with credit card rates as high as they are, if you do open an account you should be careful to spend within your means so that you don’t carry a balance.