Too many applications for credit can have a negative impact on your credit history, but you shouldn’t be afraid to apply for a new card to get a better deal.
Every application you make for a credit card is noted on your credit file. As you might expect, applying for several credit cards (especially if you’re rejected for any) can have a negative impact on your credit history and can hurt your chances of loan approval in the future. However, it’s important to consider changing credit cards every so often, especially if you’re looking to take advantage of introductory credit card offers such as 0% balance transfers and promotional purchase rates. So, how often is too often when applying for credit cards?
Use this guide to understand why several credit card applications can have a negative impact on your credit score and how often you should be applying for a new card.
Why you might want to change your credit card
In a survey conducted by finder.com.au in April 2016, 77.13% of Australians admitted that they hadn’t changed their credit card in the last five years. While this approach may be more convenient than comparing and applying for other cards, you could risk missing out on more competitive offers, affordable interest rates and beneficial features. Some of the main reasons you might consider applying for a new credit card include:
- 0% balance transfer offers. If you’re struggling to repay an existing debt that is collecting high interest, a credit card with a low or 0% interest rate on balance transfers promotion could be one reason to switch credit cards. These balance transfer rates are usually in place for a promotional period, from say 6 to 20 months, and can be a useful way to pay down your debt without the additional cost of interest. When the offer finishes, a standard interest rate on purchases or cash advances will apply on remaining balances. However, it’s important to note that you can’t transfer between certain banks and eligibility requirements do apply.
Guide on applying for a balance transfer
- 0% purchase rate offers. If you have a large-ticket purchase in mind or are sick of accruing high interest on your everyday purchases, you might want to consider a card with low or no interest rates on purchases for a promotional period. While some cards come with low interest rates of around 12% for the life of the card, these cards have a 0% promotional purchase rate for 3 to 18 months. As these low interest rates only last for this period, it’s important that you make your purchases as early as possible so you can take advantage of as much of the promotional period as you can before the standard interest rate kicks in.
- Bonus points offers. If you collect rewards or frequent flyer points as you spend, a credit card with a bonus points offer could be a benefit. Some rewards cards and frequent flyer cards offer up to 100,000 bonus points on sign-up when you meet certain spend requirements in a set period. As long as the spend requirements align with your purchase plan and you can afford to repay it without accumulating interest, a bonus points offer is an easy way to boost your points balance and a persuasive reason to switch cards.
- Annual fee waiver. If you’re paying an annual fee on your credit card, some cards offer either no annual fee for the life of the card or waive the annual fee for the first year. If the value you’re getting from the card doesn’t outweigh the annual fee or if you want to cut down on standard credit card costs, one of these cards might be useful to compare when picking a new credit card.
The pitfalls of frequently changing credit cards
While applying for a new credit card can be a smart way to take advantage of a more competitive deal, it’s important to remember that too many credit card applications on your credit history can be a red flag to future lenders. This is because declined applications imply that you’re a high-risk applicant who isn’t eligible or capable of paying back a credit card. Every time you apply for a credit card (and are either denied or approved), it’s logged on your credit file listing.
Rather than applying for multiple credit cards at once, you should take the time to compare your options, understand the features and fees that come with the card and ensure you meet the eligibility requirements before you apply.
The standard eligibility requirements usually include:
- Age. Most card issuers require applicants to be at least 18 years old.
- Minimum income. You’ll be required to meet a minimum income to apply for the card. The minimum requirement will vary from card to card, but low minimum income cards usually start at $15,000 p.a.
- Residential status. Cardholders usually need to be permanent Australian residents, though some cards are available to temporary residents.
- Good credit history. All Australian credit cards require cardholders have a good credit history to receive approval. So if you’ve got a history of bad debts, missed repayments or bankruptcy, you should consider some alternative credit options.
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You’ll also be required to provide information such as proof of identity (for example, your driver’s licence or passport) and proof of income (including your employer’s information and recent payslips), so make sure you have these handy.
If you’ve applied for a credit card and have been rejected, you should wait at least a few months before applying for another. During this time, you should work on paying down any existing debts to prove your ability to repay and spend some more time comparing your options to find a card that you’re eligible for. If you do this for a few months, the repayments you’re making on your existing debt should help improve your credit score and, as long as you meet the eligibility requirements, you should improve your chances of future approval.
See our guide for more information on why your credit card application might’ve been declined and what you can do to improve your likelihood of approval.
What to consider before changing credit cards
While it can be beneficial to change credit cards every so often, there are a few important factors to consider before you make the switch:
- What type of card do you want? If you’re switching cards, it’s because you’re not happy with the card you currently have. Consider your spending habits, ability to repay and financial goals to determine what type of card you need. If you’re struggling to repay a debt, a 0% balance transfer card might be suitable. Otherwise, you might want to consider a 0% purchase credit card if you have some big-ticket items to purchase. If you repay your balance each month and want to get more from your card, a rewards credit card could help you reach those goals.
- Promotional offers. If you’re applying for a card because of a promotional offer that’s in place, make sure you understand if there are any terms and conditions involved (such as applying before a set date), how long the offer is in place and what the revert rate or fee is when the offer does end.
- Bonus points requirements. You’ll usually have to meet a spend requirement to earn bonus points, so try not to be tempted to overspend for the sake of these. While the points may be appealing, you can quickly find yourself in credit card debt if you’re unable to repay the balance before it accrues interest.
- Eligibility requirements. Again, it’s crucial to ensure you meet the eligibility requirements before you apply for a credit card. If you’re unsure about any of these requirements, contact the card issuer directly to discuss your options and your likelihood of approval before applying.
- Create a budget and payment plan. While it’s easy to be persuaded by competitive low interest rate offers and bonus points, you need to make sure you can afford the card before you apply. Consider the annual fee, interest rates and any other fees that come with that card and consider how they fit into your budget. While the card will have a minimum repayment amount, you should make a payment plan that ensures you can pay more than this each month. Ideally, you’ll want to pay off the entire balance before the statement period ends and the debt accrues interest.
If you stick with the same credit card for a number of years, you could be missing out on more competitive offers in the market. So long as you’ve repaid your debts (unless you’re carrying out a balance transfer), have a healthy credit history and made sure you’ve met the eligibility requirements, applying for a new credit card can be a wise move. Unfortunately, evidence of several applications for credit in a short period of time can have a negative impact on your credit history and future chances of approval. If you are rejected for a credit card, take a few months to improve your credit score and compare other credit card options before applying again.
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