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Credit card applications have dropped by 40% amid coronavirus—here's when to apply for a new card

Americans aren't applying for credit amid the coronavirus pandemic. But if you still want to apply for a new credit card, here's when it makes sense.

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When consumers face economic hardship, opening a new credit card may be a helpful option to get by. But surprisingly, many Americans aren't taking this approach during the global coronavirus pandemic.

New credit card applications were down 40% from the first week of March to the last week, according to a new report from the Consumer Financial Protection Bureau's (CFPB) Consumer Credit Panel.

The report looked at hard inquiry data, or the number of times consumers' credit was pulled for an application. Results revealed that the credit card industry is not the only one seeing a drop; auto loan inquiries have decreased by 52% and mortgage inquiries by 27%.

What's a hard inquiry? Each time you apply for credit, the lender will perform a "hard inquiry" or "soft inquiry." Hard inquiries are the most common and appear on your credit report after you submit an application, which may ding your credit score temporarily. Meanwhile, soft inquiries have no effect on your credit.

The CFPB cited that this sharp drop in new inquiries could be due to a lowered demand for credit (people are spending less), or a drop in credit supply that may indirectly or directly raise consumers' expectation of being turned down for credit.

In other words — consumers expect it will be harder to qualify for credit or a loan, given the number of banks scaling back on lending during the market's current conditions.

Why people with higher credit scores are applying for fewer cards

Suprisingly, card applications declined significantly more for consumers with super prime scores (above a 780 VantageScore) compared to consumers with deep subprime scores (below 500), at a rate of 59% and 34%, respectively.

The CFPB pointed out that while all types of inquiries declined notably, consumers with higher credit scores had the most substantial drop. This could indicate they have more flexibility in substituting new credit applications with other means of financial support, such as emergency savings or passive income.

Regardless if you have savings or not, you may still want to apply for a credit card. A new card can provide an extended credit limit, which is something you may need if you've recently been laid off or had your credit limit reduced without notice. It could also reward you with cash back for stocking up on groceries and streaming Netflix

But before you apply for a new credit card, we review some tips below.

When to apply for a new credit card

Credit cards can provide you with more flexibility when it comes to paying for purchases. That may include the ability to use your card online or over the phone, as well as pay purchases off over time with no interest. These are all benefits of using credit over cash while many of us shelter in place.

For example, if you want to order food delivery or household goods, you'll have to use a digital payment, such as a credit card or debit card — not cash. While debit is an option, it provides fewer fraud protections and generally is more risky than paying with credit.

Here are some situations when it can be a good idea to apply for a credit card:

  • You have good or excellent credit: This allows you to qualify for the best cards, such as the Citi® Double Cash Card and American Express® Gold Card. It also raises your chances of getting promotional 0% financing, which can help you out during a layoff or furlough. Unlike typical credit cards, the Gold Card allows you to carry a balance for certain charges, but not all.
  • You have no credit card debt: This will ensure you don't add more high-interest debt on top of what you're already struggling to pay off.
  • You have an emergency fund: This acts as a safety net for unexpected expenses and increases your ability to pay off your credit card balance every month.

Here are some situations when it can be a bad idea to apply for a credit card:

  • You tend to spend outside of your means: A new card provides more credit, which can be risky if you chronically overspend.
  • You can't pay off your current credit card debt: If you're currently in credit card debt, be thoughtful about opening a new card. A balance transfer card may help you get out of debt with an introductory 0% APR period. One example is the Citi Simplicity® Card, with its 18-month interest-free period on balance transfers and purchases (then 14.74% to 24.74% variable APR). For best results, learn how to make the most of your balance transfer.
  • You recently applied for credit products: Every new application typically results in a hard pull of your credit, which can hurt your qualification odds.
  • You lost your job: If you have a reduced income, this can reduce your chances of being approved since lenders see it as you have limited funds to repay debt.
  • You plan to apply for a mortgage or auto loan: You should limit hard inquiries prior to applying for major credit products so you increase your chances of getting the best rates.

If you decide to open a new credit card, make sure you check your credit score first. This can help you decide which type of card you may qualify for. (Check out our lists of best cards for bad credit, fair or average credit, good credit and excellent credit.)

Take action: Equifax, Experian and TransUnion announce free weekly credit reports for a year

Information about the Citi Simplicity® Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the cards prior to publication.

Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.