Having access to credit is a great thing. You can make large purchases and then pay for them in monthly installments, build a credit history and have an emergency fund in your wallet at all times. However, credit cards have added several new features and perks that older credit cards may not have had. That begs the question of whether or not you have outgrown your current credit card.
What's Your Credit Limit?
When you are a teenager, having a credit limit of $1,000 is a good way to build your credit history and have money if your need to make a repair to your car or need books for school. However, that credit limit can become a pain as you grow older. Unfortunately, not all credit card issuers allow you to increase your credit limit easily.
If you have a credit card through a credit union, they may require a certain debt-to-income ratio before approving a credit increase. This is because credit unions do not make as much of a profit as a regular bank or other credit card issuers. Therefore, they need to be selective over who to give credit to.
However, getting a credit card through a credit union can be a great thing if you are young and need a credit card at a reasonable interest rate. It can also be helpful if you are recovering from a bankruptcy and want to attempt to get an unsecured line of credit for the first time after it was discharged.
Do You Have a Secured Credit Card?
The object of having a credit card is to have a line of credit that you can use whenever you want without having to back that up with cash or collateral. A secured credit card requires you to put up your own money prior to getting a credit limit. While you may get your money returned to you in due time, there may be other restrictions that unsecured lines of credit don't have.
For instance, you may need to pay an inactivity fee if you have a secured line of credit. You may also have to make credit payments on time for many years before the line is converted to an unsecured line of credit. On the plus side, those who are patient will get their security deposit back plus interest when the credit line goes from secured to unsecured. However, this may not be good enough for those who are looking for more than just a credit line from their credit card.
Do You Get Cash Back or Other Rewards?
Most credit cards from major credit card companies such as Discover, American Express and Capital One offer at least 1 percent cash back on every purchase that you make. This can be helpful if you spend a lot on gas, food or clothing for yourself or your family. If you run a small business, you may charge many of your business expenses and can cut down on overhead by using such a card.
In addition to the 1 percent cash back on all purchases, you may be able to get up to 5 percent cash back depending on the type of card that you use and what promotion is running at a given time. For example, a credit card company may offer the extra cash back on gas purchases one quarter and on online shopping the next quarter. This may be in addition to other deals that you can get when you shop with specific retailers.
Instead of cash back, you may be entitled to points that can be redeemed for airline miles. Stock brokerages that have their own credit card may transfer your cash back into your retirement account, which allows you to save for retirement while you spend money on things that you would normally buy anyway. The best part is that the cash back is generally not taxed, which helps you save regardless of where you put your money.
Are the Terms and Conditions of the Credit Line Generally Not in Your Favor?
The next time that you look at your credit card statement, look at the amount of interest that you are paying. If you are paying more than 20 percent, you may be paying too much. Those who have good credit should be able to get an interest rate of around 10 percent or less while the average interest rate is roughly 15 percent.
Credit card companies have also started to waive late fees or won't raise the interest rate on your credit card if you fail to make a payment on time. This can save you a lot of money if you use your credit card often and have made a payment or two a few days late over the past six months.
Has your credit card company lowered your credit limit? If so, this could be a problem for your credit score as well as your financial flexibility. Lowering the amount of credit on your card or cards can reduce your available credit and increase the percentage of credit that you are using. This can make it look like you rely too much on credit and can make it harder for you to get a loan.
You may have outgrown your credit card if it no longer suits your needs. If you want an unsecured card after a bankruptcy, need a higher credit limit or think you could pay a lower interest rate on another card, it doesn't hurt to check out other offers. Most credit card companies can prequalify those looking for cards without impacting their credit. This may be the best way to shop around to see what the best offer is for your needs.
