3 Key Things to Look for When Choosing a Credit Card
. When used correctly, a credit card can be a trusted financial tool. The right credit card provides you with rewards and perks, and doesn’t penalize you overmuch when you carry a balance or make a mistake.
Because there are so many credit card options available to you, it can seem overwhelming to compare every detail of each card. But you don’t have to spend hours looking for the best credit card for you. A quick comparison will suffice — as long as you know the three key things to look for. (See also: Consumer Reports Picks the Top Three Credit Cards for Your Needs)
1. Rewards Should Match Your Shopping Habits
A good rewards credit card provides you with bonuses. When used correctly, a rewards card can earn you money. However, you need to choose a card that matches your shopping habits.
The first thing to look for is a rewards card that provides you with something that you will actually use. If you travel a lot, a travel rewards card, offering you bonus points for airfare purchases and hotel stays, can be just right for your situation.
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If you don’t drive a lot, even the best gas rewards card won’t do you much good. Maybe you would benefit more from a credit card that rewards you for buying groceries, or one that provides you the chance to earn extra rewards for dining out.
Before you start looking at credit cards, consider what you want to accomplish with your credit card, whether it’s earning free stuff or paying down debt with the help of a balance transfer. Think about your lifestyle, and choose a card that reflects your priorities and interests.
If you don’t want to limit yourself to certain rewards, there are a number of good cash back credit cards that can help you meet your goals. If you just want to earn consistent rewards for your regular purchases and only want to worry about one card, it’s hard to beat the value of a cash back credit card.
2. Interest Rate and Fees Should Be Reasonable
Once you figure out what you want your credit card to help you accomplish, look at the interest rate associated with the card, as well as the fees charged. Fees and interest can destroy the value of your rewards, offsetting the progress you have made with them.
Your interest rate will depend largely on your credit rating. The higher your credit score, the lower your interest rate. Someone with excellent credit can expect to see interest rates as low as 10.79% to 13.99%. If your credit isn’t as good, you will probably pay more, usually in the 15.99% to 19.99% range. Those with poor credit, if they are approved, may pay 22.99% or more.
If you pay off your credit card balance each month, the interest rate isn’t such a big deal because you don’t have to worry about interest charges. You can work on improving your credit, and then ask your credit card issuer to lower your interest rate later.
Each credit card charges different fees. You don’t have to read through all the terms and conditions to locate the main fees charged by each card, though. Most credit card offers come with the most common fees prominently listed in the marketing materials. Some of the fees you should compare include:
Annual fee: There are many rewards cards that don’t charge annual fees. However, some of the premium cards, if you use them a lot, can be worth the annual fee. It’s fairly common to pay between $50 and $150 for rewards cards. Some premium cards charge as much as $400. Make sure you review the rewards program to ensure that you will earn enough to offset the fees.
Balance transfer: If you are planning to transfer a balance, this fee is a very important consideration. Most cards charge between 3% and 5% of the amount you transfer. Try to find a card with a lower fee in order to reduce what you pay.
Cash advance: Most cards charge between 2% and 4% of the amount you withdraw. There might be a minimum, though, of $10 or $15.
Late and over-the-limit fees: Pay attention to these fees, which average around $35 per incident. If you pay late, or go over your credit limit, it can really start to add up.
You can avoid most of these charges as long as you are responsible with your credit cards and avoid cards with steep annual fees.
3. Terms Should Be Easy to Understand
You don’t need to get caught up in the nitty-gritty of the credit card terms, but you do want to pay attention to some key terms. Once again, most of these terms are fairly easy to find in the marketing literature that you receive with credit card offers.
If your credit card is being used for a 0% APR balance transfer, find out when the introductory period ends. The longer the period, the better off you’ll be. Realize, too, that sometimes the intro period for purchases is different from the balance transfer period. Check these options carefully.
Double-check the restrictions related to your rewards. There might be expirations, as well as limits on what you can earn. A generous rewards program might have a cap on what you can earn. Pay attention to these items to ensure that you are getting the most for your rewards.
Check minimum spending requirements. Some rewards programs, like Discover, require that you spend $3,000 before you can access the highest rewards level. Make sure you understand the minimums, and blackouts (especially for travel rewards cards).
Choosing the right credit card for you doesn’t have to be a complicated endeavor. Take a few minutes to compare three or four different credit card rewards programs and determine which will benefit you the most. LINK
How to Choose a Credit Card By Miranda Marquit on 25 January 2013
As the economy continues its slow recovery, credit card issuers are ready to start enticing consumers with the promise of great terms and easy money. The Federal Reserve and J.D. Power and Associates have both reported an increase in credit card spending for 2012.
With credit cards are becoming popular again and creditors loosening their standards a little bit, you are probably seeing more credit card offers in your mailbox. For best results, you need to be a little picky.
Before you sign up for a credit card, evaluate the offer to ensure that you are getting the best deal for you. Here are 10 things to do. (See also: 6 Awesome Credit Card Tricks That Will Save You Money)
1. Avoid Independent Marketers
You might be surprised to learn that some credit card offers come from independent marketers. These offers come in very plain envelopes that, rather than being branded with a bank’s logo or name, bear generic return addresses to “Credit Card Administration” or “Processing Center.”
These card offers are rarely your best choice. Many of them attempt to charge you for an application or come with other fees. Instead, choose from credit card offers straight from the issuer.
2. Choose a Rewards Program You Will Use
Many credit card issuers try to lure you in with the promise of a rewards program. Before you decide, make sure that you will use the rewards. Don’t get a miles card if you are more interested in cash back.
Also, pay attention to the terms of the rewards. Some cards advertise that you can get 5% cash back, but then you find out that you only receive that amount on certain categories, rotated throughout the year. Miles programs are notorious for making you feel as though you are receiving a lot, but then you find out that you need 40,000 miles in order to redeem your rewards for a flight.
Finally, make sure you understand redemption fees, blackout dates, and expiration policies. Also, some cards will zero out your rewards if your card is inactive for a certain period of time.
3. Evaluate the Annual Percentage Rate
Next, look at the annual percentage rate (APR). Consider the purchase and cash-advance APRs. Understand what you will be charged for each type of transaction. Your purchase APR is the rate you pay on regular purchases made with the card, and your cash advance APR is the rate paid for cash withdrawals at the ATM.
You should also pay attention to the default rate. This is the rate you are charged if you are late with a payment or go over your limit. Often the default rate is as high, or higher than, the cash advance rate — which is often much higher than the purchase rate.
When possible, choose a credit card with a lower interest rate. The purchase rate is often the most important charge to consider, but you should also be aware of the other rates you could be charged, especially if you plan to use your credit card to access cash.
4. Pay Attention to Introductory Periods
It’s easy to get drawn in by a 0% introductory rate. It seems like a good deal, since you can make purchases without having to worry about the interest charged. Make sure you understand how long the period lasts, though. Some credit cards only offer an intro period of 3 months, while others offer 18 or even 24 months.
Understand, too, that you might get an introductory period on a balance transfer, but not on a purchase. Or you might receive the low intro rate on your purchases, while paying interest on any balances you transfer. Sometimes there are different intro periods; you might receive 6 months on a balance transfer, and 12 months for purchases.
Look for a longer introductory period, but also make sure you understand what is covered in that intro period. Try to find a card that gives you an intro period on both balance transfers and purchases.
Also plan to pay of balances before the intro period ends. Otherwise you could end up paying the higher regular rate. Make sure you find out whether the interest is “capitalized” at the end. While most issuers don’t do this, some will add up all the interest you would have paid, and then add it at the end of the intro period if you still have a balance.
Finally, don’t forget that your intro period can end abruptly if you are late with a payment or go over your limit.
5. Watch Out for Balance Transfer Fees
Many credit cards come with balance transfer offers. It’s important to carefully evaluate balance transfer offers — especially if you are trying to reduce your debt faster. A balance transfer can help you put more money toward the principal of your debt rather than reducing your payment’s effectiveness with interest payments.
However, before you transfer a balance, make sure that you are ready to meet the terms. Most cards have a balance transfer fee of between 3% and 5%. So even though you might pay 0% interest for six months, you could still pay a hefty balance transfer fee.
Run the numbers and make sure that your interest savings during the intro period will more than offset your balance transfer fee. Even better, look for a credit card that doesn’t charge balance transfer fees.
6. Pay Attention to Balance Computation
It’s one of those fine-print things, but the way your balance is computed makes a big difference in how much interest you pay. If you pay off your balance each month, this isn’t such a big deal, but if you carry a balance, it does. There are two options:
Average Daily Balance
Each day, your credit card balance is figured. At the end of the billing cycle, all of it is averaged. Interest is charged on your average balance.
With this method, the issuer takes the balance at the end of the last period, and subtracts any payments that you have made during the current cycle. This is considered advantageous to consumers, since it gives you the chance to pay part of the balance without interest during the next billing cycle.
7. Understand How Often the Interest Is Compounded
Another small item to consider is how interest is calculated. Your credit card represents compound interest, meaning that when you are charged interest, it is added to your balance, and you pay interest on the total. Essentially, you pay interest on your interest.
Unfortunately, most credit cards compound interest daily. This means that at the end of each day, your interest is added to the balance. Because you are charged interest more often, the bill is slightly bigger by the end of the month.
There are some credit cards that compound interest monthly, but those are few and far between. It doesn’t hurt to check, though, since the difference can matter if you plan to carry a balance.
8. Consider the Annual Fee
Find out whether or not the card has an annual fee. In some cases, the card materials make a big deal of not having an annual fee, but when you look closer, you can see that there is an annual fee — it’s just waived for the first year.
You can also determine whether that annual fee is worth paying. In some cases, the rewards program and other perks are so generous that they more than make up for the annual fee. If you know that you will use the credit card enough to offset the fee, it might be worth it for the other perks and rewards.
9. Watch Out for the Minimum Finance Charge
Read the terms to find out whether or not your credit card comes with a minimum finance charge. This is the minimal amount you will have to pay each month — no matter how small your balance. If the minimum finance charge is $15 a month, and you happen to have just a small amount on the card, like $10, you might still have to pay the minimum finance charge.
If you have a large balance that you carry regularly, the minimum finance charge probably doesn’t matter. However, it can make a big difference if your balance is small, since you could be paying a little extra due to the minimum finance charge. If you do have a card with a minimum finance charge, you are better off keeping tabs on the balance, and paying it off in its entirety.
10. Look for Other Fees, Terms, and Conditions
Make sure that you look at other fees and conditions. One of the biggest items to pay attention to is the dispute resolution process. You might be subject to binding arbitration, meaning that rather than resolving the issue in court, you have to abide by the decision made by an independent third party.
Other conditions might include additional fees for various services, as well as qualifiers that indicate that you might not receive the advertised interest rate. Carefully read the fine print. Credit card issuers include information on the complete terms and conditions, and you can also usually find the information online.
Before you commit to apply for a credit card, double check the offer. Compare offers, and then choose the one that is likely to provide you with the greatest benefit. LINK