One of the primary benefits of a credit card is the ability to make purchases now and pay for them later. Credit cards have a lot of features that can work for you or against you. A credit card could have one feature that makes it look very attractive – like a low interest rate – and another that completely negates that attractive feature – like a high annual fee.
When you’re on the market for a new credit card, look at all the features, not just one or two them, to make pick the right credit card for you.
Shop around.
You’ll see credit card advertisements around the web and may even receive credit card offers in the mail. Don’t sign up for the first credit card you see. Instead, review the credit cards you receive and compare them to see which card offers the best deal. If you’re interested in a bank and don’t have an offer from them, visit their website to see what cards are available.
Decide how you’re going to use the credit card.
Different credit cards have different purposes. It’s smart to pick a credit card based on how you’re going to use it. If you’re planning to carry a balance on the card, meaning you won’t pay the balance in full each month, then select a card with a low interest rate. That way you’ll save on interest. For transferring balances, select a credit card with a low balance transfer fee and a low balance transfer interest rate. If you plan to book flights on your credit card, look for one that has frequent flier miles. You’ll have an easier time shopping for a credit card when you know exactly what you’re looking for.
Know the grace period.
The grace period on a credit card is the amount of time you have to pay a balance in full to avoid a finance charge. Grace periods nearly always apply only when you begin the billing cycle with a $0 balance. Longer grace periods are better if you plan to pay your balance off each month because you get more time to pay your balance before a finance charge is assessed.
You may not get a grace period on purchases if you already had a balance at the beginning of the billing cycle. Not only that, certain types of balances, like balance transfers and cash advances don’t have grace periods. Interest begins accruing on those balances immediately.
Check the interest rate.
The interest rate is one of the primary factors you should consider when you pick a credit card, especially if you don’t plan to pay off your balance every month. Lower interest rates mean you pay lower finances charges – the fee charged whenever you carry a balance beyond the grace period. Lower interest rates are typically given to applicants that have better credit scores. If you don’t have a good credit score, you may not qualify for a low interest rate.
Credit cards can have several interest rates – one for purchases, one for balance transfers, and one for cash advances. Interest rates for balance transfers and cash advances are usually higher, unless you’ve signed up for a promotional offer. Check for the lowest interest rates on the types of balances you plan to transfer.
Check the credit limit.
The credit limit is the maximum amount you can charge on your credit card without receiving a penalty. Some credit card companies have eliminated over-the-limit charges that are imposed whenever you exceed your credit limit. Exceeding your credit limit can still result in a higher interest rate since you’ve defaulted on the terms of your credit card agreement. If you need to make expensive purchases, look for a credit card that has a high credit limit. Remember that if your balance exceeds 10% of your credit limit, your credit score could be affected.
Pay close attention to the fees.
Most credit cards have fees. It’s one of the ways banks make money from credit cards. Ideally, you want to completely avoid credit card fees unless the credit card has some other benefit that makes the fee worth it. For example, some rewards credit cards have an annual fee. If you can accumulate more rewards than your annual fee, then you’ve got a good deal. Otherwise, you’re paying for something you could have been getting for cheaper, or maybe even free.
Read the credit card disclosure.
Credit card companies are required to give you certain information about their credit cards whenever they send a credit card offer or application for the credit card. These credit card disclosures contain most of the information you need to pick the best credit card. This includes:
- the annual percentage rate for all types of balances
- the penalty rate and the instances in which the penalty rate applies
- any variable interest rate information, along with the associated index rate
- the grace period
- the finance charge calculation method
- the annual fee, if any
- the minimum finance charge
- fees, like cash advance fees, balance transfer fees, late payment fees, and over-the-limit fees
Choose Wisely
Rather than pick the first credit card you see, compare several credit cards from different issuers to be sure you’re getting the best deal. Finally, don’t apply for too many credit cards within a short period of time. You’ll hurt your credit score with multiple credit card inquiries and may even be denied for credit cards because of the applications.
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