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Choosing a credit card can be overwhelming when you don’t know what to look for. The good news is this advice will have you feeling like a pro, prepared to pick a card that’s perfect for you.
To begin with, think about how you spend and how you intend to use your credit card. This is absolutely the first thing to begin with. Will you pay off your balance each month in full or will you carry a balance? Will you use the card to pay for everything or is it just for emergency situations? If you plan to pay your balance in full each month the interest rate isn’t the most important thing. What you should look for is a credit card with no annual fee and a long grace period to avoid interest and finance charges. If you will carry a balance the top priority is interest rate. Get the lowest rate you can and try to get an introductory rate. If the card is going to be used to buy everything you’ll do well to get a card with plenty of rewards–like cash back–and a high credit limit if possible. Lastly, if you will use your credit card simply for emergencies just try to get a card with a low interest rate, low fees, and nothing else.
Next, look at the interest rate. The annual percentage rate, or APR, can be either fixed or variable, although variable is the most common. This means that the rate is tied to the prime rate and can go up. The interest rate obviously dictates how much you will pay for carrying a balance on your credit card.
Third, look at the fees and penalties for the credit card. This is very important. Credit cards charge many fees including fees for transactions like cash advances and balance transfers, fees for asking for a credit limit increase, fees to pay by phone, fees for being over the credit limit, and fees for late payments. If you’re going to use your card for balance transfers make sure you review this section carefully. Usually credit cards charge 3% of the balance transfer fee with a minimum amount of $5 or $10 although it is possible to find credit cards that have no transaction fees. Avoid cards with high fees that you find unreasonable. If you don’t expect to use the card frequently don’t pay for a rewards program or an annual fee.
Credit limit is another thing to consider when choosing a credit card. This is the amount of money that the issuer of the card will let you borrow at any one time. This will depend on your credit history. If you have a bad credit history but manage to get approved for a card your limit will usually be $300 or less. Individuals with excellent credit, however, can get up to tens of thousands of dollars for a credit limit.
Next, do a quick check to see the balance computation method, which lets you know how finance charges are calculated if you have a balance. This will only apply if you carry a balance or go over the grace period. Usually credit cards use the average daily balance to compute the balance, meaning that daily balances are added together and divided by the number of days in the billing cycle.
Lastly, look at any incentives or rewards that the credit card offers. You may not qualify for cards with rewards if you have poor credit. Those with good to excellent credit can usually get a good credit card with cash back or travel benefits. Make sure you’re not paying anything for these rewards though because it’s easy enough to find an issuer that provides them for free. The best programs give you flexibility and options, letting you decide to use accumulated points for travel, cash or merchandise.
These are the most important things to look for when deciding to apply for a credit card. These things will also give you an easy and understandable way to compare credit cards, allowing you to choose the card that will serve you best.