Business

Applying for a new credit card? Tread carefully

Shopping for a credit card is a lot more complicated than it used to be. That might be a tough pill to swallow if your terms were unfavorably tweaked in the past year and you're itching to take your business elsewhere. You may find other banks aren't clamoring to steal you away. That said, banks still want the best customers, and even those with spotty credit histories have options.

KNOW WHERE YOU STAND

To size up your desirability as a customer, start by checking your credit report.

You're entitled to one free report a year from each of the credit bureaus, Equifax, Experian and TransUnion (go to annualcreditreport.com to get started).

Your report won't give your actual score, however; you need to pay $10 or more for that, depending on the agency. Or you can go to myFico.com and pay $15.95, which also gets you access to a calculator that lets you see how actions, such as paying off a debt, would improve your score.

If you don't want to pay, you can take a quiz at CreditCards.com to get an estimate of the range you might fall into. Your score will fall into the categories of excellent (750 or higher), good (660 to 749), fair (620 to 659) and poor (350 to 619).

Getting a new card shouldn't be a problem for anyone with excellent credit. If your credit is fair to good, you can probably get approved for a major bank card, but your interest rate might be as much as 8 percentage points higher than someone with excellent credit. You can probably get a card with a poor credit score. But expect a slew of fees that might not make it worthwhile.

WEIGH REPERCUSSIONS

Before you apply, consider whether you might also be seeking a mortgage or car loan in the next year. Applying for a new card can shave a few points off your score, since it generally gets dinged when your report reflects that you've sought credit.

The same is true if you open a new card, since the new account will bring down the average length of your credit history. Just how much your score is hurt will vary depending on your overall profile. The negative impact usually disappears after a year.

Also be careful about closing old accounts once you get a new one. A little math can give you a sense of how much an account closure might hurt your score. Weigh your credit limits against your balances to see what percentage of your credit you're using. If the figure drops significantly once you close an account - and the limit on your new account doesn't make up for it - then you're hurting your score.

DETERMINE YOUR NEEDS

If you're prone to carrying a balance, your top priority should be a low interest rate. Also be on the lookout for balance transfer fees; many banks now charge up to 5 percent, instead of the 3 percent fees from a year ago.

If you're trying to budget, you might want to avoid rewards cards. They tend to have higher interest rates, and you might be inclined to spend more because you're earning points.

If you pay off your bill every month, interest rates have no bearing on you and the world of rewards opens up. All you have to decide is whether you want cash back, merchandise or miles.

For personalized recommendations on a card that suits you, you can punch in your information at billshrink.com or mint.com. You can also comparison shop at sites like bankrate.com, cardhub.com, cardratings.com, creditcards.com and lowcards.com.

GOT A BAD SCORE?

An option is a secured credit card. The catch is that you'll need to put down a deposit equal to the amount of your credit line, and you'll likely be charged a membership fee (around $50) and a setup fee (around $70 to $100). The upshot is that a secured card is a way to rebuild your credit history.

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