It seems that every financial institution and major retail chain offers one or more credit card options. How do you decide which is best for you?
Ensuring you have the right card takes some legwork, but the effort will be worth it. Before applying for a credit card, evaluate your needs and the terms offered by the credit card.
Know your needs and limits
- Try to figure out how much you will be spending each month.
- Ask yourself if youll be able to pay the balance in full every month and be honest when you answer. If you think you’ll be carrying a balance, you may want a card with a lower interest rate. If you plan to use your card for cash advances, you’ll need to compare interest rates for advances, which can sometimes vary from the interest charged for purchases.
- Think about which rewards, if any, you might be interested in. If you travel frequently or are looking to buy a new car, you might want to consider rewards programs that let you earn frequent flier miles or points towards the purchase of a new car.
- Decide if you are prepared to pay an annual fee for your credit card.
Compare credit cards
Once you determine which features are most in line with your needs, compare all of the cards in your category. When doing this comparison, make sure you understand the terms and conditions being offered and be thorough in your research. The list below includes some of the main points you’ll want to consider.
- Interest Rates This is the rate at which interest accrues on your unpaid balance. It is often the first consideration made by credit card applicants. Beware that many cards have varying rates for purchases, cash advances and balance transfers. Some have special introductory rates be sure you know what the rate will be when the introductory period ends. There may also be different rates charged if you are late with a payment.
- Calculation of Finance Charge The finance charge is the amount you pay for your credit. It is calculated using your outstanding balance and the interest rate. The method used to calculate the balance is important. The balance might be calculated over one or two billing cycles and may include the adjusted balance, average daily balance or previous balance, and may or may not include new purchases.’
- Grace Period The time between the statement date and the due date is considered the grace period because no interest is charged during this time. If you plan to pay your bill in full each month, a longer grace period may be of interest. Note that there is not typically a grace period for cash advances and balance transfers.
- Type of Card Typical card types include regular (no annual fee and no rewards), secured (requires a deposit to secure your credit limit), premium cards (higher credit limits, rewards and often an annual fee), retail cards (used at a particular store, usually high interest rates and complex interest calculations).
- Fees In addition to the annual fee that is charged on some cards, other fees might be charged for: cash advances, balance transfers, late payments, setup, exceeding the credit limit and returning items.
- Rewards and Incentives Be clear on all of the terms for rewards and incentive programs and make sure you are getting value for them, especially if an annual fee is charged. Some added features, like balance insurance, cost extra