Money Management

New credit cards can be exciting, but will they hurt your credit score? Learn what to expect when you open a new credit card. 

A flashy welcome offer on a rewards card. A 0% APR period that’s 21 months long. A mass of bonus miles that would fly you to Auckland via Rome, New Delhi, and Kuala Lumpur, with hotel credits to stay where you land.

Yes, there are lots of reasons to get new credit cards, and, truthfully, lots of great credit cards to give you new reasons to get one. The problem is that credit cards aren’t free. And no, I’m not talking about APRs and annual fees (though those are important to consider, too). I’m talking about the impact on your credit score, what those new credit card applications will do once you’ve been accepted or denied.

To be frank, the ding to your credit score isn’t always as bad as you might think (as long as you’re not applying for, like, five cards at once). It could even improve your score over long periods. With that in mind, let’s look at the net impact a new card could have on your score.

You’ll authorize a hard inquiry on your credit report

Whenever you apply for a new credit card, the card issuer will run a hard inquiry on your credit report. Hard inquiries stay on your report for two years and can cause your score to drop initially by five to 10 points. Notice I said “initially:” Your score will bounce back. But the impact will be immediate.

Depending on your credit score, shedding five to 10 points could be inconsequential or it could mean the difference between having good credit and fair credit. For instance, let’s say you plan on applying for a conventional mortgage and your credit score is 622. Since most lenders require a 620 for a conventional loan, getting a credit card before your loan application would knock your score out of range — so it’s not a smart idea.

At the same time, if you had a credit score of 790, a new credit card wouldn’t have a huge impact. You’d still meet the requirements for the loan and you could take advantage of that new card’s perks.

In addition to hard inquiries, be mindful of the length of your credit history. Higher scores typically go to those who have a lot of experience with credit, meaning older accounts. A new credit card could make the average age of your accounts seem younger. For instance, if you have one five-year-old credit card and another that’s four years old, a newborn card could then shorten your account’s average age. The impact typically won’t be major but when combined with the hard inquiry it could drop your score by a noticeable amount.

New credit cards increase your total available credit

The upfront damage is unavoidable: If you want a new credit card, you’ll lose a few points to the hard inquiry and maybe some more to a younger account age. But these dings are temporary and will — with good credit card practices — correct themselves.

One of the long-term boons of opening new credit cards is that you’ll increase your total available credit. This could have a positive impact on your score. Credit utilization — the ratio of credit you’re using versus the total credit you have available — has a major influence on credit score models. For example, in your FICO® Score, credit utilization takes up 30%. That’s more than new credit (10%) and length of credit history (15%) combined.

Of course, this will only help if you keep your credit utilization low, ideally below 30%. But having more credit available will make the ratio less sensitive to your everyday spending.

Should you apply for new credit cards?

Opening a new credit card will have a temporary impact on your score (unless you open several at once, which could do more damage). Those with excellent credit can absorb the impact without many consequences, but if your score is on the borderline between good and fair — or lower — you might want to reconsider.

That doesn’t mean you shouldn’t open new credit cards. It’s a good idea to avoid it when your credit score is needed for other things, like getting a mortgage or cheaper car insurance. Take a look at your score, but if you can afford a five to 10 point decrease, the long-term benefits could outweigh the upfront costs.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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A boosted credit score won’t just mean a lower interest rate on a loan — it’ll help you in other ways, too. Read on to learn more. 

The highest credit score you can get is an 850. But the reality is that most people don’t have perfect credit, and there’s a reason for it.

Any time you apply for a new loan or credit card, a hard inquiry is done on your credit report, which can result in a very small hit to your score. So even if you’ve paid every single bill of yours on time in the past five years and maintain a $0 credit card balance, if you applied for a loan two months ago, chances are, you won’t have perfect credit.

However, Experian, one of the three credit bureaus, reports that a credit score of 740 to 799 is considered very good, while a score of 800 to 850 is considered exceptional. So once your score reaches 800, there’s a good chance you’ll not only have a relatively easy time qualifying for a loan or credit card when you want one, but also, snagging a competitive interest rate in the process.

But that’s not the only benefit to having a high credit score. Here are three perks you might also enjoy.

1. You may have an easier time renting a home

It’s common for landlords to perform a credit check on prospective tenants before letting them sign a lease. If you’re looking for an apartment in a city with few rentals, your high credit score might give you an edge. A landlord might prefer to rent to you than someone whose credit isn’t as great.

You can also use a higher credit score as a negotiating tool for lower rent. Let’s say you’ve been in your rental for a couple of years and your landlord wants to impose an increase. You could point to your stellar credit as a reason they’d want to keep you around as a tenant — and potentially avoid having to pay more.

2. You might save money on your car insurance

There are different factors that determine what premium rates you’re quoted when you shop around for auto insurance. These include your driving history, location, and vehicle type and age.

But another factor that auto insurers tend to take into account is credit. You’d think that wouldn’t be part of the mix, since your tendency to pay bills on time doesn’t necessarily correlate with the way you handle a vehicle on the road. But still, it’s often a factor unless you live in a state that bans the practice.

3. You might have an easier time getting a job

Some employers conduct a credit check as part of the process of vetting employees. This is especially likely to happen if you’re applying for a job that requires you to handle or manage money.

One thing you should know is that in the course of this type of credit check, a prospective employer generally will not get to see your actual credit score. However, they’ll see components of your credit report that include your payment history. And a strong payment history is indicative of a high credit score.

It pays to boost your credit score

A strong credit score could do a lot of good things for you. If you feel that your credit score needs work, you can boost it by:

Paying bills on timeKeeping your credit card balances to a minimumNot applying for new loans or credit card accounts for a period of timeKeeping long-standing credit card accounts openChecking your credit report for errors

It may take some time for these moves to have an impact on your credit. But once they do, you can put yourself in a position to benefit in more ways than one.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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We can’t predict the future. But here’s what to watch and what the experts think will happen. 

Mortgage rates have risen sharply from about 3% at the start of 2022 to nearly 8% today. And while the ultra-low mortgage rates we saw for much of 2020-2021 aren’t likely to return anytime soon, many would-be home buyers are wondering when the cost of getting a mortgage loan will come down and make homeownership more affordable.

With that in mind, here’s what makes mortgage rates rise and fall, where some of the top mortgage organizations and experts see rates heading, and why mortgage rates are so hard to predict.

Why do mortgage rates rise and fall?

It might seem logical that mortgage rates rise along with the Federal Reserve’s interest rate moves. After all, the Fed has raised the benchmark federal funds rate by 5.25 percentage points over the past couple of years, and mortgage rates have increased from the lows by approximately the same amount.

However, it’s important to be aware that mortgage rates are not directly tied to the federal funds rate, or any other benchmark interest rate for that matter. But they don’t exactly have a mind of their own, either. They tend to move in the same direction as certain benchmark interest rates, but there are other factors. Supply and demand are big factors that cause short-term moves in mortgage rates, and inflation expectations play a role as well. And other aspects of the Federal Reserve’s monetary policy play a role.

For example, when the COVID-19 pandemic first started, the Fed started purchasing mortgage-backed securities (MBS) to stimulate the economy and keep liquidity in the system, and had purchased more than $1.37 trillion in MBS from March 2020 through April 2022 — and this definitely contributed to the sub-3% mortgage rates we saw during that period.

What do the experts predict?

As of Oct. 11, 2023, the average 30-year fixed mortgage rate in the United States is 7.83%, the highest level in more than two decades. And the good news is that most experts seem to think mortgage rates will fall in 2024. Many predict that inflation will decline and the Fed will start cutting rates, both of which would be conducive to lower mortgage rates. But there isn’t a great deal of agreement on how fast they could fall. (Note: All of these are referring to 30-year, fixed-rate mortgages.)

Mortgage giant Fannie Mae sees rates falling significantly to 6.8% in the first quarter of 2024 and continuing to decline gradually throughout the year, reaching 6.3% in the fourth quarter.The National Association of Realtors sees the average 30-year rate falling to 6% by the end of 2024.The Mortgage Bankers Association sees rates hitting 5.4% during the fourth quarter.A Navy Federal Credit Union economist predicts that 30-year mortgage rates will start 2024 in the 7.25%-7.5% range, and fall to a range of 5.5%-6% by the end of the year.A senior Morningstar economist sees a sharper decline, with rates declining to about 4.5% by 2025.

So, one key takeaway is that none of the major mortgage-related organizations see rates going up next year. However, there’s a chance the Fed will have to keep hiking benchmark rates if inflation proves harder to control than expected (so far, this has been the case). And if this happens, it’s entirely possible that mortgage rates will increase even further in 2024.

Where will mortgage rates be at the end of 2024?

As we’ve seen, most experts and organizations predict that mortgage rates will be significantly lower at the end of 2024 than they are today. But it’s by no means a certainty, and nobody knows for sure where rates will end up.

There’s a solid case to be made that we could see sub-5% mortgage rates by the end of 2024 if inflation gets under control quickly and the Fed starts cutting rates. But rates of 8%, 9%, or even higher are entirely possible if the Fed must continue raising rates to keep inflation in check.

Having said all that, you don’t necessarily need to let higher mortgage rates discourage you from becoming a homeowner. Assuming you can afford the monthly payment, you can always refinance the loan quite easily if rates go down. Plus, it’s not as if rent has become any cheaper. If homeownership seems like the best move for you (aside from high borrowing costs), it could still be a good idea to get rate quotes from some top mortgage lenders and get the process started.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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If you owe money to creditors, you may be worried about what actions they can take. Read on to see if your IRA is protected. 

When you fall behind on repaying a debt, whether it’s a loan or a credit card balance, the entity you owe money to may not just let it go. And so a creditor might take action by suing you in court to recoup the money it’s owed. If a judgment is entered against you, a creditor may be allowed to go after different assets of yours, including money you have in a savings or checking account.

But what about the money you’ve socked away for retirement? Can creditors go after those funds, too?

The answer is, it depends on the type of account you have and where you live. But if you have an IRA, you should know that a creditor may have a right to go after that money.

IRAs don’t offer the same protection as 401(k)s

Employer-sponsored 401(k) plans are protected by the Employee Retirement Income Security Act (ERISA), which means creditors cannot go after them. There are a few exceptions, such as if your creditor is the IRS and the debt in question is an unpaid tax bill. But generally speaking, 401(k) assets are protected from creditors.

The same can’t be said for IRAs, though. IRAs aren’t covered by ERISA because they’re individually owned, as opposed to 401(k)s, which are owned by a plan administrator. And so if you’re sued in court and your creditor wins, they may be able to come after your retirement savings in an IRA.

It’s worth noting that many state laws protect IRA funds. But that’s not universal. In California, for example, your IRA funds are protected only to the extent of money needed to support you and your family at the time of your retirement while taking the total of your assets into account. So if you have a $200,000 IRA balance but it’s determined that you only need $100,000 of that for retirement, you might risk losing the remainder of your balance if you owe a creditor that much.

And either way, IRA funds are not protected once you withdraw money from your account. So if you transfer $10,000 from your IRA to your bank account, a creditor can, generally speaking, go after that money without an issue if a court determines it can.

You may want to keep some long-term savings in a 401(k)

The nice thing about IRAs is that you can manage your account yourself, and you’ll generally get far more investment choices than with a 401(k). That could result in lower fees, which is a good thing, since fees can eat away at your returns and leave you with less money.

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But if you have an IRA and also have access to a 401(k) plan, then it could make sense to contribute some money to the latter as well. That way, if you’re ever in a situation where a creditor comes after your assets, you won’t have to worry about losing a chunk of your retirement savings.

Plus, many 401(k) plans offer some type of employer-matching component. That’s free money for your retirement, and it’s something you won’t find with an IRA. So for that reason alone, having a 401(k) on top of an IRA could make a lot of sense.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.The Motley Fool has a disclosure policy.

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Have a Costco membership? Read on to see why it pays to put it to good use for Halloween purchases. 

In my household, Halloween is a big deal. My daughters in particular love not just the actual holiday, but the many pre-Halloween events that tend to take place in town, like trunk-or-treat events and parties.

Even though Halloween can get expensive, I try not to skimp on it too much because it only comes around once a year and it’s so important to my kids. But I still try to find ways to save money on my Halloween purchases. And my Costco membership makes it possible to do just that. Here are a few reasons you may want to head to Costco for your Halloween shopping, too.

1. You can save on bulk candy

In my neighborhood, we tend to get lots of trick-or-treaters. So I know that it’s smart to err on the side of buying extra candy, just in case. (Besides, if there’s candy left over, my kids and I can just eat it. That’s not such a raw deal.)

What I love about Costco is that it sells bulk packages of well-known candy at affordable prices. A 90-ounce bag of popular chocolate miniatures costs just $22.99 online right now, and prices tend to be even lower in stores. All told, with the online price, you’re paying $0.26 per ounce. By contrast, a bulk bag of candy at my local grocery store would have me paying $0.44 per ounce.

2. You can purchase a costume on the relative cheap

Costco carries a range of costumes — and it even has costumes for dogs. Now, the price you pay may or may not be comparable to what you’ll pay at a specialty store. A Disney princess costume will cost you $39.99 at Costco.com, and that’s in line with the prices I saw at my local Spirit Halloween a few weeks ago.

But Costco also has some lower-priced costumes on its shelves. When I was there, I found several options in the $30 range. That’s a bit cheaper than what you’ll find elsewhere.

Plus, if you have an Executive membership at Costco, your Halloween costume purchase will result in 2% cash back on top of whatever cash back your credit card gives you. That’s a good way to offset your cost.

3. You can return any purchase you aren’t satisfied with or don’t end up using

Costco has a really good return policy. With limited exceptions, you can bring back items you don’t like or need and get a full refund. That’s an important option to have on Halloween.

Let’s say you buy two bulk bags of candy at Costco because you anticipate a lot of trick-or-treaters, but you only get half your usual crowd this year. Unless you want a massive sack of candy at home (and no one would judge you for that), you may want to return the bag you didn’t have to bust into. Costco will allow you to do that.

Similarly, your child may decide at the last minute that they don’t want to wear their costume, or that they won’t be comfortable trick-or-treating in it. If that happens, just bring it back — and get your money back.

You certainly have options when it comes to shopping for Halloween. But Costco is my go-to place, and you may want to make it yours as well.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Maurie Backman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool has a disclosure policy.

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The last few months have been pretty tough financially, but I’m committed to rebuilding my savings. Find out how I plan to do it. 

This summer, I welcomed my second child into the world. It’s been an incredible — albeit stressful — journey since then, all the more so because I went without a paycheck for months. Even though I’d planned my time off well in advance, it still wasn’t easy to watch my savings account balance dwindle as regular bills and then expensive hospital bills kept pouring in.

I’m now back at work, and while it feels good to have stopped the financial bleeding, I’m not content with that. I want to build my savings back up again so I’m better prepared for future expenses. Here are three things I plan to do to pull off this personal finance rebuild.

1. I’m still minding my spending

During my time off of work, I did my best to reduce my spending and limit myself to essential costs. Of course, those are still pretty high when you have a newborn at home. But I did what I could. If it wasn’t essential for keeping the lights on or caring for my children, I held off.

That doesn’t mean I ditched all forms of entertainment. We still had my husband’s income to rely on, so we were able to keep all the streaming services we’d been paying for. But we stuck close to home and passed on most activities that would have required us to spend a lot of money.

It wasn’t always easy, but I reminded myself that it was only temporary. Plus, all the things I didn’t buy for myself can go on my Christmas list this year — so my family and friends actually have some ideas for me for once.

2. I’m trying to increase my income

Now that I’m back to work, I’m trying to increase my income at least temporarily. As a freelance writer, that’s pretty straightforward: I just have to write more. It means putting in a few more hours every day, but I’m also taking steps to streamline my process so I can get more done in less time. I’ve only been at it a few weeks, but so far, it’s all going well.

Obviously, increasing income isn’t as simple for someone who works a more traditional salaried job. But there might still be some ways you can make this happen if you want to. You could try working overtime here and there or asking for a raise.

You could also look into a side hustle if you’ve got some spare time on your hands. The average side hustle brings in close to $500 per month, and some make more than $1,000 per month. You’ll have to save a cut for taxes, but if you set the remainder aside, you could easily grow your wealth by thousands of dollars each year.

3. I’m budgeting a portion of my monthly income to savings

Taking in extra money is helpful, but doesn’t always lead to more savings on its own. That’s why I’m trying to budget a portion of my income to send to my savings account. Since my income varies, the amount I set aside each month will probably vary as well.

I’m fine with just tracking my income and savings progress through my online bank account, but you could look into budgeting apps as well, if you like. These apps might also help you identify areas of overspending so you can correct the problem and save even more.

I plan to reevaluate my savings goals every month or two to see if I’m trying to do too much or if I have room to set aside even more money. I don’t want to set a rigid goal for myself because life happens sometimes and the best plan for me right now may not suit me in the future. It’s totally fine if your goals are a bit of a moving target. You just need to keep checking in with yourself to ensure you’re heading in the right direction.

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We’re firm believers in the Golden Rule, which is why editorial opinions are ours alone and have not been previously reviewed, approved, or endorsed by included advertisers.
The Ascent does not cover all offers on the market. Editorial content from The Ascent is separate from The Motley Fool editorial content and is created by a different analyst team.Kailey Hagen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Target. The Motley Fool has a disclosure policy.

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