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While in credit recovery, apply for new card with care

To maximize score and get the best deal, pay off old card's balance 1st

By

Opening Credits
Columnist Erica Sandberg
Erica Sandberg is a prominent personal finance authority and author of "Expecting Money: The Essential Financial Plan for New and Growing Families." She writes "Opening Credits," a weekly reader Q&A column about issues for people who are new to credit, for CreditCards.com.

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Question Dear Opening Credits,
I have recovered from the credit problems of the past and got my first new card back in December. My credit went up 104 points, and I have kept the balance down to 25 to 30 percent each month with making payment as fast as the bill comes in. It is not a card that I really want though. I would like to apply for a new card that gets me travel rewards. Is it too soon after having received the other card to apply foranother card? How long should I wait? – Brad

Answer

Dear Brad,
Glad to hear that your recovery was a success! A credit score increase of over 100 points is fantastic. Credit issuers rely on these scores (plus the financial information you list on the application, such as income) to determine qualification. In general, there is no specific waiting period before you apply for a new card, although how long you’ve had and used the one you have is a scoring factor. That’s not as important as your payment history and debt-to-credit-limit ratio, but it will have an effect. Ideally, you’ll have a long history of using a variety of accounts, but one that you use well can still boost your score.

You don’t mention what your score is now, which is a crucial factor when card shopping. Without that information, it’s not possible to know if you’re eligible for the better travel rewards products, which require scores in the good-to-excellent range – the mid-700s on up.

I’m not sure that your credit scores are quite there yet, as it depends where they started. For example, maybe you began at the very bottom of the scale. Presuming you’re checking the FICO or the most recent version of the VantageScore (the two most commonly used scoring systems), that would be between 300 and 600. Even with the extra points, your scores would still be considered poor, so your options will be very limited.

On the other hand, your scores may have been decent – say, around 650 – but now they’re 750. That would place you in the ultra-low risk category, so the most reward-rich travel credit cards might be available to you. Select the one that you like best and apply. As long as you have a secure job, you should be welcomed in. However, what concerns me is you’re still carrying a balance on your card every month, which may be keeping your scores below what they could be if you paid off what you borrowed in full every month. There is an old, pervasive myth that revolving debt is fine as long as the amount is below 30 percent of your total credit limit. That’s wrong. To ensure scoring greatness, you’ll want to use the card regularly and pay the bill in full every month. Besides, any balance you shift over incurs interest costs, which is a waste of money.

If your scores aren’t where you want them to be yet, you can get them higher by paying off any debt you’re holding. After that, charge only what you’ll pay off before the due date.

When you do get the travel rewards card, consider keeping the other card active and perfectly maintained to help your scores stay high. The only reason you should ditch it is if the fees are too expensive. In that case, call the issuer and ask if the fees can be waived. No dice? Start the search for a different card that has preferred terms. With a desirable credit rating, you should have no trouble. In fact, offers will probably come to you, so be prepared to be selective! 

See related: Rebuilding credit? Go easy on new accounts, How paying more than the minimum helps build credit, Keeping a card balance to boost credit score is dumb advice

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Published: April 6, 2016


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Updated: 12-06-2016


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