When you are offered a discount at the checkout counter in exchange for applying for a new retailer-branded credit card, it can be tempting. But it's not always the right choice.
Applying for a credit card can temporarily lower your credit score and place more stress on your finances, especially if you are already carrying other credit card balances. After all, it's one more bill to manage and one more card to potentially overspend on. The benefits might also be underwhelming after that first-time discount.
Despite those drawbacks, a survey by the credit bureau Experian recently found that about 1 in 4 consumers plan to open a new credit card this holiday season. Among those who plan to do so, 36% said they want to score store discounts; 35% said they want to maximize their rewards and cash-back earnings. More alarmingly, 1 in 5 said they were opening a new card because their other cards were maxed out.
If you are considering opening a new credit card this season, here are some questions to ask yourself first.
1. Is it a good deal?
One-time, upfront discounts are good, but ongoing incentives are potentially much more valuable. For example, Target Redcard Credit Card cardholders get a 5% discount on eligible purchases and extra time for returns. Those with the Amazon Prime Rewards Visa Signature Card earn 5% back at Amazon, among other rewards. The Capital One Walmart Rewards™ Mastercard earns 5% back on Walmart.com purchases and 2% back on in-store purchases, plus other rewards.
"If you pick one or two retail stores where you get the best discounts and apply for their cards instantly, it can be a good strategy to save money — as long as you turn around and pay off that debt right away," said Rod Griffin, Experian's director of consumer education and awareness.
General consumer cards not tied to particular stores also offer shopper-friendly rewards: The Discover it Cash Back, for example, earns 5% in rotating bonus categories on up to $1,500 in spending each quarter (activation is required; all other purchases earn 1% back). And in the final quarter of 2019, those bonus categories are Amazon, Target and Walmart.com.
Beyond reward rates, also take into account a card's fees, ongoing APR and difficulty of reward redemption.
2. Do you pay your existing balances in full and on time?
If you are having trouble juggling multiple due dates or habitually pay late (and incur late fees), then it's probably not ideal to open yet another card that you'll have to manage.
3. Do you stick to your budget?
If you know you will be tempted to blow your budget, skip the new card and pay with cash or debit instead.
4. Do you already have the loans you need for the near future?
When you apply for a new credit card, it triggers a hard pull on your credit report, which can have a small, negative effect on your credit scores. That means that if you are also planning to apply for a mortgage or auto loan soon, you may want to avoid applications for new credit accounts now.
The bottom line: If you answered "no" to more than one or two of these questions, hold off on new cards. But if you answered "yes" to all, a new card might be the right call.
Kimberly Palmer is a writer at NerdWallet. E-mail: firstname.lastname@example.org. Twitter: @kimberlypalmer.