What to know before you open a new credit card
A new credit card is a borrowing tool, not information programs. When you use it, you are borrowing from the card issuer and agreeing to pay back what you spend, usually with interest. The card issuer sets your credit limit — the maximum you can borrow at once — based on your credit history and income. If you carry a balance month to month, you pay interest on that balance. If you pay the full statement balance by the due date each month, most cards charge no interest.
Before you open a card, know what you will actually use it for. Some cards reward you for groceries or gas. Others charge an annual fee but offer travel benefits. Some have no rewards but lower interest rates. The card that looks best in an ad might cost you money if it does not match how you actually spend.
Opening a card involves a hard inquiry into your credit report, which can lower your credit score slightly for a few months. This matters if you are planning to borrow for a car or home soon. If you already have several cards with high balances, opening another one can also hurt your score by raising your total available credit.
Key Takeaways
- Credit cards charge interest on balances you do not pay in full by the due date, so the interest rate and annual fee matter more than rewards if you carry a balance.
- Rewards cards are only worth opening if you will spend enough to offset any annual fee and actually use the rewards before they expire.
- Opening a card triggers a hard inquiry that can lower your credit score for a few months, so space out new card applications if you are planning other borrowing.
- You will need to provide your Social Security number, income, and permission for a credit check when you open a card, whether you explore online, by phone, or in person.
- The card issuer will tell you your credit limit and interest rate after they review your process, not before you explore.
Types of credit cards and what they cost
Credit cards fall into a few broad categories. Rewards cards give you cash back, points, or miles on purchases. They usually charge an annual fee between $0 and $500, depending on the card. The higher the fee, the more rewards you earn per dollar spent. A card with a $95 annual fee might give you 2% cash back on everything, while a card with no annual fee might give you 1%. Do the math: if you spend $5,000 a year, the $95 card costs you $95 but earns you $100 in cash back, netting you $5. If you spend $2,000 a year, you lose money.
Balance transfer cards offer a low or 0% interest rate for a set period — usually 6 to 21 months — if you move debt from another card to this one. They charge a balance transfer fee, typically 3% to 5% of the amount you move. These cards make sense only if you have existing credit card debt and a plan to pay it off before the promotional rate ends. After the promotional period, the interest rate jumps to the card's regular rate, which is often high.
Low-interest cards have no annual fee and no rewards, but a lower ongoing interest rate than most cards. These are useful if you know you will carry a balance and want to minimize what you pay in interest. The trade-off is that you earn nothing on your spending.
Secured cards require you to put down a cash deposit, usually $200 to $2,500, which becomes your credit limit. You use the card like any other card, but the deposit protects the issuer if you do not pay. Secured cards are for people rebuilding credit or with no credit history. Once you show responsible use over several months, the issuer may convert it to a regular card and return your deposit.
How to compare cards side by side
Start by listing what you actually spend money on each month. Do you buy groceries, gas, travel, or dining out regularly? Do you pay an annual subscription or insurance premium? Write down the categories and rough amounts. Then look at what each card rewards. A card that gives 5% cash back on groceries is only useful if you buy groceries.
Next, write down the annual fee, the regular interest rate (called the APR or annual percentage rate), and any promotional rates. If a card has 0% APR for 12 months on balance transfers, that only matters if you plan to transfer a balance. If you will pay your full balance every month, the APR does not matter at all, and you should choose based on rewards and annual fee alone.
Check whether the card has other costs: foreign transaction fees if you travel internationally, late payment fees, or fees for going over your credit limit. Some cards waive the annual fee for the first year, so the true cost is lower in year one than year two.
Use a rewards calculator if the card issuer provides one. Enter your expected annual spending in each category and see what you will earn. Subtract the annual fee. If the net is positive and you will actually use the rewards, the card is worth opening.
What you need to open a card
You can open a credit card online, by phone, or in person at a bank branch. Online is usually fastest — you can complete the process in 10 to 15 minutes. You will need your Social Security number, current income, and permission for the issuer to check your credit report. Have your driver's license or passport nearby in case you need to verify your identity.
The issuer will ask for your current address and may ask about your employment. They want to know whether you have the income to pay back what you borrow. If you are self-employed or your income varies, have a recent tax return or pay stub ready to explain it.
After you submit your process, the issuer reviews it and makes a decision within minutes to a few days. You will receive a decision by email or mail. If you are approved, the issuer will tell you your credit limit and interest rate. If you are denied, they will tell you why — usually because your credit score is too low, your income is too low, or you have too much existing debt. You can ask the issuer for the specific reason and sometimes reapply after addressing it.
After your card arrives
When your card arrives in the mail, sign the back of it before you use it. Set up online access to your account so you can check your balance and make payments. Most issuers let you set up automatic payments, which can help you avoid late fees. You can pay the full balance, a minimum amount, or any amount in between.
If you want to build credit, use the card for small purchases and pay the full balance every month. This shows lenders that you borrow responsibly. Do not close the card after you pay it off — keeping it open and unused helps your credit score by keeping your available credit high.
If the card has a rewards program, register for it on the issuer's website so your purchases are tracked. Some rewards expire after a certain time, so check the terms. Set a calendar reminder to use your rewards before they disappear.
What happens if you miss a payment
If you do not pay by the due date, the issuer charges a late fee, usually $25 to $40 for the first late payment and more for repeat offenses. Your interest rate may also jump to a higher "penalty rate." The late payment stays on your credit report for seven years and damages your credit score.
If you miss a payment by more than 30 days, the issuer reports it to the credit bureaus. If you miss a payment by more than 120 days, the issuer may close your account and send your debt to a collection agency. At that point, you owe the full balance when ready, not just the monthly payment.
If you are struggling to pay, call the issuer before you miss a payment. Many issuers have hardship programs that can lower your interest rate or pause payments temporarily. It is easier to work something out before you fall behind than after.
Credit cards versus other borrowing tools
Credit cards are one way to borrow, but not the only way. A personal loan from a bank has a fixed interest rate and a set repayment schedule, so you know exactly what you will pay and when you will be done. A line of credit works like a credit card but usually has a lower interest rate and no rewards. A buy-now-pay-later service lets you split a purchase into payments, often with no interest if you pay on time.
Credit cards are useful for everyday spending and emergencies because you can borrow as much as your limit allows and pay it back on your own schedule. But if you know you need to borrow a large amount for a specific purpose — a car, home repair, or debt consolidation — a personal loan or line of credit might be cheaper because the interest rate is usually lower.
Frequently Asked Questions
How long does it take to get a credit card after I am approved?
Most cards arrive by mail within 7 to 10 business days after approval. Some issuers offer when ready card numbers you can use online when ready while you wait for the physical card. Call the issuer's customer service number on your approval email if you need the card sooner.
Can I open multiple credit cards at the same time?
You can, but each process triggers a hard inquiry that lowers your credit score. If you open several cards within a short time, the damage adds up. Space applications out by at least a few months if you can. Some people open two cards a few weeks apart if they want specific rewards from each, but this is a strategy for people with strong credit scores who can absorb the temporary hit.
What is the difference between a credit card and a debit card?
A debit card pulls money directly from your bank account, so you can only spend what you have. A credit card borrows money from the issuer, which you pay back later. Credit cards build your credit history; debit cards do not. Credit cards offer fraud protection and rewards; debit cards usually do not.
Will opening a credit card hurt my credit score?
Yes, but usually only for a few months. The hard inquiry lowers your score by a few points. Opening the card also lowers your average account age if you have other cards. Over time, as you use the card responsibly and the inquiry ages, your score recovers and usually improves because you have more available credit.
Can I change my credit limit after I open a card?
Yes. You can call the issuer and ask for a higher limit, and they may approve it without another hard inquiry. You can also ask for a lower limit if you want to restrict your own spending. Some issuers automatically increase your limit after several months of on-time payments.