Putting my eggs in one basket?
June 9, 2006 2:41 PM   Subscribe

Should I get another credit card?

Right now, I have two credit cards, that I carry a balance on monthly. Yesterday, I received notice from my bank that I am eligible for a credit card with them (my other two are with different banking institutions). The interest rate on the new card would be lower (6% lower), and I could use it to pay off the balance on my other two credit cards, consolidating the two bills into one. This particular card has no special interest rate for balance transfers.

But is this a good idea? I have been told that I am pre-approved for a certain amount (that covers the other balances), but I don't know if getting another credit card will compromise my credit rating, or if it would make a difference if I paid off the other two, and then cancelled them outright.

The other added benefit is that it would put all my important banking things with one bank.

I am in Canada, by the way, if that makes a difference.
posted by synecdoche to Work & Money (15 answers total)
It would make a slight difference on your score to get a 3rd card, just getting your credit checked hurts your score a little bit. But transferring the balance to a lower rate (find a ZERO rate card!) is a very smart decision. You will save a lot of money by doing this, it's definitely worth it. Also, cut up the card so you can't buy more crap with it.
posted by knave at 2:59 PM on June 9, 2006

Your credit score might fall slightly, especially if your utilization (i.e. the balance as a percentage of the limit) on the new card is higher than the utilization on the others, but to save the 6% it's probably worth it. It will recover in a few months once your balance starts heading downward. Opening up lots of new accounts at once is also a red flag, but opening just one shouldn't trigger any hit to your score.
posted by kindall at 3:18 PM on June 9, 2006

If you are wanting to keep all things in one place you should skip the card and call the bank back and ask about a personal line of credit. They base their pre-approvals for credit cards and LOC's on basically the same guide lines, so you shouldn't have a problem getting approved. Lines of credit typically have much lower rates (usually prime + 2 or 3, depending on your credit rating) than credit cards. I know that some Canadian Mastercards and Visa's have just recently raised their interest rates in the past month to 18% or higher. Get the LOC, pay off both of the other cards and save even more money. Keep one card for emergencies and toss the other.

LOC's are usually attached to a checking or savings account that you can access with a debit card, so you will still have easy access to the funds if needed. While your credit rating may take a small hit from this application, it is always better to have some kind of revolving credit than none at all.
posted by shemacg at 3:21 PM on June 9, 2006

Are you genuinely qualified for the new card? I find that the frigging banks will often send "preapproved" appplications to anyone with an address (no disrespect intended), but as soon as they see your particulars they may back down.

Since it's from the bank you currently deal with, might not hurt to pop into the branch to confirm that you're truly eligible, for enough credit to wipe out the other card balances. Tell them straight up what you intend, and they should be helpful, since they're gaining your credit business.

When you do get the new card, follow through. Immediately pay off the other two card balances, cancel those cards and destroy them!

(on preview, the LOC idea is even better, if you intend to reduce debt and reduce or stop using your credit card)
posted by Artful Codger at 3:26 PM on June 9, 2006

Having too many credit accounts is bad. 3 is not too many.

Keeping <4 0% utilization of your limit is good.br>
Paying bills on time is good.

Not getting more than 3 inquiries [from your applying for cards] a quarter is bad.

Keep your accounts at old bank(s) open and keep the card(s) in the freezer for an emergency or just never to use [the freezer makes it hard to get to, but not impossible if your car breaks down over the weekend and you need the card, but it is difficult to does something like buy an iPod]. It is good to have accounts that are open a long time.

People get in trouble when they get the new card for the balance transfer and then start using the old cards since you freed up al that available credit. Don't fall for that.

Use the old card to buy something like lunch and pay it off just so the old bank's computer doesn't think you're dormant and they might give you a better rate or other stuff to coax you into paying them again. If they think you're never going to use the card, they might close your account since you're not worth it to them and that doesn't help your credit score because you won't have a card that has been open for decades.
posted by birdherder at 3:28 PM on June 9, 2006

Get the card with the lower rate and consolidate your debt. If you have debt, this is just plain good sense.

Moreover, with only three cards, you wouldn't trigger any significant worries about having too much credit. Credit scores aren't as fragile as most people think. Pay your bills on time, don't get freaky and you'll be fine.
posted by frogan at 3:34 PM on June 9, 2006

A fellow Canuck here. Get the lower rate card, then either transfer everything to the lower rate card, or wait two or three months for them to send you "balance transfer" cheques...when they do they'll be something like 2.5% on the balance you transfer instead of the normal full rate (i get offers like this from Amex Canada and Master Card Canada regularly...i'd probably get them from Visa too but I haven't used it in over a year (and no, I don't carry a balance on any of my cards, I put all of the last bit of my outstanding debt in an ING LoC).
posted by furtive at 4:35 PM on June 9, 2006

Oh, and it can be good to keep two cards (for example, if you go to europe, some places use one network such as cirus and others use the other network, but cut one of the cards up so that you only have the lowest interest one. Then, if and when you really need both credit cards, just phone in advance and you'll have a replacement card within a week.
posted by furtive at 4:37 PM on June 9, 2006

birdherder, I don't understand this sentence: Not getting more than 3 inquiries [from your applying for cards] a quarter is bad.
posted by evariste at 4:49 PM on June 9, 2006

It all depends on your priorities.

If I were doing it, I'd consolidate all of my debts on one low-interest rate credit card. I'd close my other credit accounts. Then I'd work hard to pay off the consolidated debt. When that was done, I'd close the account.

If you are the sort of person who can refrain from accumulating credit card debt, and who can keep from carrying a balance, then it's fine to have a few credit cards. In this case, it's good to hold cards for a long time.

If, however, you are like me, and find it easy to rationalize purchases on credit, then you are far better to have no credit cards at all. None. Not one. You don't need them. Will the lack of a credit card affect your score? Yes, but not much. I recently wrote about how credit scores work, including breakdowns of how different things affect your score. I note that although I haven't had a credit card in more than five years, I have excellent credit. (And my credit report explicitly states that the reason my score isn't higher is because I don't have any credit cards.)

So: you should move your balances to a lower rate card regardless of what else you do. Your further actions should be based on how well you deal with credit. Don't buy into the "you must have a credit card" mentality — the banks love that shit. If you're responsible with credit, keep a few cards. If you're not, then don't.
posted by jdroth at 4:56 PM on June 9, 2006

I don't understand this fascination with credit scores. Can you eat a credit score? Is it beautiful? Can you put it on your mantle and admire it? What good is it?

The only use of a good credit score is to SAVE YOU MONEY. By being a good credit risk, you entice lenders to lend you money at low interest rates. That's it. No other benefit.

So when you have an immediate way to save money.... do it. Who cares about whether it is an infinitesimal ding on your credit score?

What you should do is find a way, any way at all, to eliminate your credit card debt. To me, having a revolving balance on a credit card is a huge red flag, because if you haven't got the spending cash to pay off a debt at 19% interest, then you haven't got any spending cash at all. A balance transfer to another card might possibly help you achieve that goal, except that please read the fine print: balance transfers and other cash-based transactions almost always are billed at the worst possible interest rate, so I doubt very much that the rate would actually be 6% lower than what you have now.
posted by jellicle at 6:00 PM on June 9, 2006

Response by poster: Thanks. Ideally I'd get a line of credit, pay it all off on the line of credit, and then make payments on the line of credit. However, I don't think I'm likely to get a decent-sized line of credit, as I've done a piss-poor job managing my money in my adult life. I'm a student with student loans on top of the credit card debt, not to mention car payments. (Yeah, like I said, I've been piss-poor with my money).

That said, I'm trying to turn things around, which is why I decided to look into this a bit further. Recently I've been giving myself an "allowance" rather than spending freely, and budgeting much more carefully with the mind to get at least the credit card debt under control, for starters.
posted by synecdoche at 6:29 PM on June 9, 2006

Synecdoche, based on what you've added, I would advise that you get rid of all of your credit cards as quickly as possible. Trasfer your balances to a low-rate card and close the previous two. Pay off the balance your new consolidated balance and then close that card. If you know you have trouble with money and debt, the best thing you can do for yourself is to remove the ability to accumulate debt quickly. Credit scores be damned.
posted by jdroth at 6:51 PM on June 9, 2006

Ditto jdroth. He's right.
posted by cribcage at 10:26 PM on June 9, 2006

Response by poster: Thanks for all the advice. I've been thinking a lot about this lately, and I am going to do as you suggest. However, another thing I am going to do is sell my car. I'm moving across the country soon to continue my education, and consequently my income level will drop. Rather than have money being tight, I've decided it makes more sense to get rid of one of my bigger debts. After all, the place I am moving to (unlike the place I currently live) has a decent public transportation system.

If I'm being honest, my car is simply a luxury, and after the cost of gas, insurance, and the payments, I'd be paying more for my car there than I will be for rent. That just doesn't make sense.

But thanks for the advice. I really do want to get my finances under control, and you've certainly motivated me to actually DO something rather than just talking about it.
posted by synecdoche at 11:06 PM on June 11, 2006

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