Selecting a Credit Card

Holding 3 credit cards in one hand

It seems that every financial institution and major retail chain offers one or more credit card options. How do you decide which one is best for you?

Finding the right card requires some effort, but it’s worth it. Before applying, evaluate your needs and the terms offered by the credit card.

Know Your Needs and Limits

  • Estimate how much you will be spending each month.
  • Ask yourself if you’ll be able to pay the balance in full every month, and be honest with your answer. If you think you’ll carry a balance, consider a card with a lower interest rate. If you plan to use your card for cash advances, compare the interest rates for advances, as they can sometimes differ from those for purchases.
  • Think about any rewards you may be interested in. If you travel frequently or are planning to buy a new car, you might want to consider rewards programs that let you earn frequent flyer miles or points toward a car purchase.
  • Decide if you’re willing to pay an annual fee for your credit card.

Compare Credit Cards

Once you determine which features align with your needs, compare the cards in your chosen category. Be thorough in your research and ensure you understand the terms and conditions being offered. Here are some key points to consider:

  • Interest Rates: This is the rate at which interest accrues on your unpaid balance. It’s often the first consideration for credit card applicants. Be aware that many cards have varying rates for purchases, cash advances, and balance transfers. Some cards offer special introductory rates, so be sure to know what the rate will be once the introductory period ends. Additionally, different rates may apply if you’re late with a payment.
  • Calculation of Finance Charge: The finance charge is the amount you pay for your credit. It’s calculated using your outstanding balance and the interest rate. The method used to calculate the balance is important. It might be calculated over one or two billing cycles and could use methods like adjusted balance, average daily balance, or previous balance. New purchases may or may not be included in the calculation.
  • Grace Period: The grace period is the time between the statement date and the due date when no interest is charged. If you plan to pay your bill in full each month, a longer grace period may be more attractive. Note that cash advances and balance transfers typically do not have a grace period.
  • Type of Card: Common card types include:
    • Regular cards (no annual fee, no rewards),
    • Secured cards (requires a deposit to secure your credit limit),
    • Premium cards (higher credit limits, rewards, and often an annual fee),
    • Retail cards (used at specific stores, usually with high interest rates and complex interest calculations).
  • Fees: In addition to an annual fee charged by some cards, other fees may apply for:
    • Cash advances,
    • Balance transfers,
    • Late payments,
    • Setup,
    • Exceeding the credit limit, and
    • Returning items.
  • Rewards and Incentives: Be clear on all the terms for rewards and incentive programs. Make sure you’re getting value from them, especially if an annual fee is charged. Some additional features, like balance insurance, may cost extra.

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