Your first credit card served one important purpose: It helped you build credit.
Now, after years of making on-time payments, you’ve grown tired of your card’s puny limit and lackluster benefits — and your mailbox is overflowing with better offers. Is it time to move on?
Before you apply for that flashy new card, make sure it’s the right move for you.
When to move on
When Erin Lowry applied for her second credit card in 2013, six years after getting her first card in college, she knew exactly what she was looking for.
“The big reason I opened my second credit card was to get access to my credit score,” says Lowry, now 28 and the author of the book “Broke Millennial.” The card she picked offered a free FICO score, an uncommon credit card feature at the time, along with solid ongoing rewards.
Applying for a second credit card can be smart if you, like Lowry, know the benefits you want and have a credit score high enough to get them. Here are some good reasons for making the leap:
- You can qualify for better features, such as more rewards or a lower interest rate. You’re more likely to be eligible for the best credit card offers once you’ve made a few years of on-time payments. Consider searching for a new card if you have a good or excellent score — that is, 690 or higher.
- You want a higher limit. If you’ve outgrown the $300 limit on your first credit card, your credit is in good shape and your income has increased, you’ll likely qualify for more purchasing power. This would make it easier to use less of your available limits, which could help your credit.
- Your spending has changed. If you now travel abroad frequently, for example, a card that doesn’t charge foreign transaction fees could be a better deal.
When choosing your new card, prioritize features that fit your current reality, not a financial fantasy.
“Understand what your spending habits are,” says Paul Golden, spokesman of the National Endowment for Financial Education. “Are you anticipating carrying a balance month to month? Because that’s where the interest rate really starts to become a concern.”
Read the fine print, too. If you can redeem a card’s miles only with an airline you never use, it’s not a good deal. And a big sign-up bonus isn’t worth spending far more than you normally would.
When to hold off
Sometimes applying for a new credit card doesn’t make sense. Consider pumping the brakes on new credit card applications in these cases:
- You’re about to apply for a big loan. Signing up for a new credit card can knock a few points off your credit score temporarily. If you’re about to apply for a mortgage, that small difference could cost you thousands in interest.
- You’re having trouble sticking to a budget. A new card won’t help you stop overspending on credit. Instead of hunting for new offers, work on improving your credit card habits.
- You’re a one-card kind of person. Does the thought of managing another credit card seem overwhelming? Stick to your first one for now. You might be able to get a higher limit or better terms by asking your issuer.
What to do with your first credit card
If you do decide to apply for a new card, you should still hold on to your old plastic — unless it charges an annual fee or is tied up with a security deposit.
“In a lot of cases, it’s smart to keep that [first] credit card open, especially if it’s providing you with years of credit card history,” says Lowry, who charges a few subscriptions to her first credit card every month to keep it active.
Length of credit history is a factor in your credit scores, and as the age of that first account grows, it can continue its original work of helping you build credit. When it’s time to consider upgrading your plastic again, you’ll be ready.