Should You Apply for a No-Interest Credit Card?
Money Girl gives advice about using a no-interest credit card to finance a big purchase.
Laura Adams, MBA
Q. I need a new laptop and have been offered a 12-month, no-interest, no-fee credit card to finance it. Should I apply for the account even if it increases my credit utilization ratio up to about 50%?
Answer. A no-interest credit card offer can be a great deal when you plan to make a big purchase—like a computer or furniture—that you need to pay for over time. However, you should have a solid plan to pay off the balance in full before the promotional period expires.
For instance, a 12-month credit offer could be divided into 12 equal payments. If you stick to that schedule you won’t pay a dime of interest. Otherwise, after the promotion ends, the annual interest rate or APR usually skyrockets on your outstanding balance. You could end up paying double or triple the original purchase price.
Opening a new credit account also affects your credit score in the following negative ways:
- Your credit score takes a small hit when you have an inquiry due to a new credit application.
- Having a new credit account shortens the average age of your accounts, which dings your credit score slightly.
- Having a high balance relative to your credit limit on an account increases your credit utilization ratio, which hurts your credit score.
But the good news is that having a credit account can be a powerful way to boost your credit score. Making payments on time each month (even if they’re just the minimum payment) will help you build excellent credit over time.
Although using credit affects your scores in both good and bad ways, there’s nothing wrong with financing an important purchase that you really need. That’s what credit is for, after all. Just be sure that you can pay off the balance at the lowest interest rate possible.
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Signing a Credit Card Application image courtesy of Shutterstock
About the Author
Laura Adams received an MBA from the University of Florida. She’s an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura’s previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.