Dear Savvy,
I've just paid off one of my credit cards that was in the Debt Management Program through a credit counseling service, which is something I'm proud of! It's nice to have accomplished that! The only issue is, I got a letter from that company offering to reopen the credit card line since I paid everything off. I'm not 100 percent sure if it'd be a wise thing to do or not, since using credit cards got me into the DMP in the first place!
The upside would be that I'd have more available credit line, which could be a good thing for my credit rating. Since I've already learned my lesson the first time around, I know what not to do this time around, which was to charge without making sure I could pay it off pretty much immediately. The credit limit would be a lot lower than what it was originally, so I wouldn't be able to charge a lot, and it is a store credit card so it'd only work only for that store, and not anywhere else.
The cons would be . . . well, my credit card usage is kind of what got me in my debt situation in the first place, and I'm not so sure if I should be opening up cards so soon. The offer is only for 30 days, as well, so after 30 days, I don't know if I'd qualify for a new credit card due to my history. Should I go ahead and accept the offer to reopen the account and "start" over and be more wise, or should I just let it go?
To see my advice, read more.
Savvy says: Congrats on paying off your credit card! It's great that you made the effort and stuck with it — and that you feel like you've learned the important lesson of spending within your means. Even though you've made great strides in managing your money, I don't think it's in your best interest to reopen the card that triggered your financial troubles.
You say that opening the card will boost the amount of available credit and therefore help your credit score, which tells me that you are the owner of at least one other credit card. Instead of trying to manipulate your score, improve your number by working on paying off other debts and keeping all accounts in good standing by paying on time. Focusing on these habits will help you much more in the long run and keep you from reentering an out-of-control credit situation.
If you need more convincing, consider that you'd be setting yourself for a potentially damaging situation if you end up maxing out your new card, even if the limit is lower than what you had before. Store credit cards are, in general, not the most desirable pieces of plastic to have in your wallet. Aside from their typically astronomical interest rate, they can feed a shopper's rationalization that she's actually saving money by shopping because of whatever points or discounts she gets through using the card.
Get this card out of your head and stay on the right track of building a solid credit score. It takes a bit of self-restraint, but you'll be much better off when you need to borrow money for something that doesn't come in a store . . . like a car or house.
Have a question for me? Ask away by posting your questions in my Ask Savvy group.
DAY Birger et Mikkelsen
I agree with Savvy. Now is not the time to get this credit card especially since it is a store credit card. Their rates are the worse and the usual rationale of having a credit card (emergencies only!) doesn't apply to stores.
1Me too, a couple of years ago I finally paid off my Visa and the first thing I did was chop up the card! I only use a prepaid Mastercard now, it has saved me a fortune! (I still have an open line of credit for emergencies, but that's harder to misuse because I don't have it linked to my debit card)
2Totally agree with you Savvy. Stay away from store credit cards! The only time I would maybe consider applying for one is if it was for a store where you need to purchase essentials, like Target. Even then, I probably would never get a store credit card. It would be too tempting to overspend.
3Dont!
You may have paid off your debts and think you've learned your lesson, but it's very easy to fall back into bad habits. Before you know it, you could be right back where you started.
(trust me)
4this is really helpful. i've paid off my store credit cards too and i am tempted to start up on another credit again. but yes, accumulationg debts are the last thing you would want right now, since you're already on the right track. stick to it. i've been most reliant on my debit card these days and it's really liberating.
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