Should You Open a New Credit Card in 2021?

The use of cash has declined steadily by nearly 20% in Canada the past 10 years, and the COVID-19 pandemic has increased consumers' desire to move away from paper-based payments toward contactless and digital payments.

With the start of a new year often comes some reevaluation, which could mean working out more or doing a deep dive into your finances. Whether you already have a credit card or two or you're looking to open your first one, you may be wondering if you should open a new credit card in 2021 and what the best credit card options are this year.

Regardless of your situation, there are several questions you should ask yourself before opening a new credit card:

Do you really need a new card, and how good of a deal is it?

You shouldn't just open a new credit card without a reason. If you can get by with the credit cards and loans you already have, you might be better off staying the course. Applying for a new credit card triggers a hard inquiry, which can cause a temporary drop in your credit score.

If you've applied for another credit card or loan recently or are planning to take out another loan soon for a mortgage or car, you may want to hold off on opening a new credit card to avoid having multiple hard inquiries run in quick succession.

Big welcome offers are great, but it's important to make sure that you're getting what you need when the welcome offer benefits wear off. Compare the potential interest rate with your existing interest rates, consider if there's an annual fee or if it will be waived for the first year, and make sure the rewards program matches up with your spending.

Do you already pay off your monthly bills on time and in full?

The majority of Canadians use their credit cards as a payment method rather than a means of borrowing: 70% paid their credit card bills in full each month in 2019.

Think about your current credit card usage. Do you just make the minimum monthly payment? Are you carrying multiple balances? Have you been hit with any late fees lately? If you already have some amount of revolving debt that you struggle to pay in full and on time, now might not be the best time to add temptation in the form of a new line of credit. Instead, you may want to thank about debt consolidation.

Are you able to stay on budget?

If you're extremely faithful to your budget, no matter what comes at you, you should be able to open a new credit card without an issue. But if you think opening a new credit card could lead you to forego your budget and cause you to overspend, it's probably not a great idea.

Similarly, if you're thinking of opening a new card just to buy a big-ticket item that you can't afford without credit, you should rethink making that purchase. Instead, think of a new credit card as a great way to get more rewards from the purchases you were already planning to make.

Source: iQuanti, Inc.

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Categories: Personal and Family Finances

Tags: Budget, Credit Cards, Financial Services, Personal Finance