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.
Dear Opening Credits,
I’m 24 and have one credit card that I’ve had since March 2011. I pay it off in full every month, and only have it as a way to establish a good credit history and earn a little cash back. It has no annual fee, gets some cash back and has a credit limit of $1,500. At the beginning of the month between the statement and the payment for that statement being processed, it often has a balance of $500-$600. I’m considering applying for an Amazon rewards card with no annual fee. I don’t need it, but it would earn better rewards than my current card, comes with a $50 gift card, and having both cards would decrease my credit utilization. Would getting a second card be good for my credit score? If not, should I make more charges to my debit card to keep my credit card balance lower?— Person
I wonder if you know how unusually well you’re doing with credit, especially at such a young age. Your account is excellent, as the fees appear to be minimal, and it comes with a rewards program that allows you to earn cash-back points. Even better, you’re charging hundreds of dollars on a regular basis, but consistently paying the entire balance off every month. That’s very impressive. In theory, the steps to getting a great card and using it advantageously are simple, but doing it can be tougher. So give yourself a pat on the back for a job well done — you deserve it.
Now you can consider adding another card, because I think it’s a fabulous idea. You may not need the extra plastic for more purchases, but you’re right in that it can help build your credit rating even further.
So far you’re covering the most crucial aspects of a FICO score: paying on time and keeping balances down to well below the amount you can charge. The next most important factor is the length of time you’ve had and used credit, and there’s nothing you can do about that but continue to borrow and repay responsibly.
What you can do, though, is add to your credit collection. Owning a variety of credit instruments is a relatively minor scoring factor, but it’s still a move in the right direction. Therefore, a retail card such as the Amazon credit card that you’re thinking about will work in your favor.
Other benefits of that account are the perks. I don’t think a gift of $50 ought to sway you, but if you shop on the site quite a bit, then you’ll accumulate plenty of points that you can cash in for books and things. As long as you continue to be balance-free, you’ll come out ahead.
For these reasons, I say go forth and apply for the Amazon card — but only after you check your credit reports and FICO scores first to be sure that you qualify. Go to AnnualCreditReport.com to pull a free copy of your credit report once a year from each of the three credit bureaus. And for about $20, you can order your credit score online at MyFICO.com. If you don’t check, and Amazon turns you down due to a low credit score or bad information on your credit report, you’ll incur a minor ding on your credit score due to the hard inquiryhard inquiry. The impact will be minor, but why go down when you want to go up?
Assuming you’re approved, though, start shopping with it so you can maximize your rewards. Keep your other account active and use it occasionally as well. If you charge only what you’ll send when the bill comes in, you don’t have to worry about your balance before you make a payment. Interest won’t be applied and your score should rise like the sun.
Stay awesome, Timothy!
See related:First credit card rules of the road
Meet CreditCards.com’s reader Q&A experts
Does a personal finance problem have you worried? Monday through Saturday, CreditCards.com’s Q&A experts answer questions from readers. Ask a question, or click on any expert to see their previous answers.