Should I apply for a new credit card once the promotional rate on my current credit card expires?

Question

I used to have an average/low credit rating (experian) because I never had any lines of credit. I got a Barclaycard on a promotional offer, so for a year they have not charged me any interest for using the card.

I always pay off the balance in full every month, and the card has improved my credit rating.

The promotional offer on the card expires this April. So come April, I will be charged a very high interest rate for any balance I carry over. Should I close this account and try to get another 0% offer from a different company?

I always clear the balance, but I like the comfort of being able to carry a balance, should I need to, without having to worry about paying interest.

This is especially useful for paying back large purchases over a couple of months.

Answer 1

You'd be affecting two factors that hurt your credit score in the short term - new credit inquiries and average age of credit.

If you plan on paying the balance every month, I'd just keep the card you have and use the interest rate as a disincentive to overuse the card in one period.

Answer 2

I think there's an important distinction to make here, in that you're really asking two (not directly related, from a credit score perspective) questions:

Should I close this account

From a purely credit-score perspective, no - definitely do not close this account. Carrying a credit card account you're not using usually has a net positive impact on your score:

• it helps keep your average utilization low
• it will slowly help your average age of credit go up
• it will help keep your credit mix good

You also asked,

and try to get another 0% offer from a different company?

I always clear the balance, but I like the comfort of being able to carry a balance, should I need to

If you're thinking about this from a credit score perspective, opening another account will have a number of impacts:

• the hard pull on your credit report (which the bank will do to approve your application) will drop your score by a small amount for a short time (a few years)
• your average age of credit will drop, because the new account inherently has a zero age at first. This will slowly creep back up as the new account gets older
• your average utilization may go up or down, depending on whether or not you actually do ever carry a balance.

Of course, if you do literally need to carry a balance, having the promo rate is a good thing. But if you never plan on carrying a balance, and you're concerned about your credit score in the short term, it probably makes sense to not open the other account. If you're concerned in the long term, it's probably a wash, since:

• two cards sitting at zero aren't any different than one sitting at zero from a utilization perspective,
• credit mix won't be substantially different
• average age of credit - in the long term - will tend to balance back out
• the hard pull will eventually age off.

Answer 3

This is especially useful for paying back large purchases over a couple of months.

CC interest doesn't work the way you think it does.

I, for example, have made some very large purchases with an 18% card, which I paid for over 2-3 months. However, I never paid interest.

Why? Because on a standard card without any 0% specials, cash withdrawals, etc, payments are always applied to the oldest charges first.

Thus, while you think that you pay your normal monthly charges every month, but haven't fully paid for that fancy new TV, the bank thinks you have.

An example:

(This amazing trick won't work perfectly if you buy something really expensive and only charge a couple of hundred dollars per month, but even it would minimize your interest paid.)