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Good and Bad Credit Cards - Help Finding the Right Credit Card for You

Frequently Asked Questions About Credit Cards

Last Updated: August 26, 2014

Credit cards can be a great financial tool, if they are used wisely.  If you are looking for a new credit card or maybe you just have some questions about an application you received in the mail, we have answers to a lot of your questions.  Over the years, we have received lots of questions regarding which credit card offers are good and which cards to stay away from.

Some credit cards offer low interest rates while some entice you with reward points for purchases, no yearly fees, or maybe they donate money to your favorite charity. So, how do you know you are getting the best one? Below is a list of the most common questions we have encounter so hopefully, the answer to your question is below.

What Should I Look For in a Credit Card?

When considering a particular credit card, make sure you know ALL the details of how your card will work. Be sure to study its terms and costs before signing on. There are FIVE key elements to examine: What is the annual interest rate (APR)? Does the card have an annual fee? Is the APR Fixed or Variable? How long is the card's grace period? And, what are the card's penalty policies? By law, all these items must be disclosed at the time you apply.

Some cards pay you a rebate based on how much you spend in a year. Others offer features like frequent-flyer miles and extended warranties on purchases. You decide how much value those features hold for you. Also important is the pattern of your shopping: a card that your favorite merchants don't honor isn't much good to you.

Which is Better - A Fixed Interest Rate or a Variable Interest Rate Credit Card?

The interest rate is the rate charged on purchases, balance transfers, and cash advances. It can be fixed or variable. About 70% of all credit cards have variable rates. The interest rate on a variable-rate card fluctuates with the money index.

The interest rate on a fixed-rate credit card does not fluctuate each month or even each quarter. If you sign up for a card with a fixed 12.99% rate, chances are you will be paying that for quite a while. But, your fixed-rate card could change at ANY time and issuers must give you written notice prior to the increase.

Bottom line - you might have a higher interest rate on a fixed-rate card but you will know for sure what the rate will be. With a variable-rate card, the interest rate will change with the money index and rate decreases happen much slower than rate increases.

How do Annual Fees Work?

The annual fee is, well, a fee that the card issuer bills to your account annually. Every year, on the anniversary of the date your account was opened, the fee for the coming year is billed to your account. Typical charges are $18-$20 for regular bank cards (about $40 for gold bank cards) and anywhere from $35 on up for various flavors of T&E cards. Department store cards are typically free.

If you are looking for a no-frills, low-rate card offer, there is no reason to pay an annual fee. Avoid cards that charge them.

Is a Grace Period Important?

Yes. The grace period is the time from the statement date to the payment-due date. If payment is made IN FULL by the end of the grace period, no interest is charged. But, if only a PARTIAL PAYMENT is made, interest kicks in at the end of the grace period.

The majority of card issuers have grace periods from 20 to 25 days. Some cards have no grace periods - avoid those cards altogether.

What is a Good First Credit Card?

If you have never had a credit card and are trying to establish credit for the first time, a secured credit card is your best bet. With a secured card, you make a deposit with the credit card company, say $1,000, and they issue you a credit card with a credit limit in the same amount of your deposit. If you pay your bill on time and show you can be a responsible consumer, the card issuer will typically turn this card into an "unsecured card" after a year or so. This type of card will show up on your credit report and it will increase your score if you are responsible with it.

Other types of good cards to get are department store cards and gas cards. Both are easy to get and both will show up on your credit report. Again, make sure to pay these on time and leave little to no balance on these cards.

How Do I Evaluate a Secured Card?

Use the same criteria as for any other card. Ask the bank some additional questions: What interest is paid on the deposit? If I maintain a good credit record, when could I be considered for an unsecured card?

Also ask yourself if you might conceivably have need for the deposited funds during the required term. If so, find out up front whether you can withdraw the deposit in case of financial emergency, and what it costs in interest and penalties to do that.

You will want a secured card if you don't qualify for an unsecured one and you need to build your credit.

How Many Credit Cards Should I Have?

The more cards you have, the fatter your wallet is and the more cards you have to keep track of. See our article on credit bureaus and your credit rating for other reasons why having a lot of cards can be a problem.

It is better to have two cards with $5,000 credit limits than 10 cards with $1,000 credit limits. Your credit rating is influenced by the credit lines available to you and your history in making timely payments on outstanding balances. Get two cards with the best terms and get rid of the rest.

Is a Discount Better Than a Rebate?

Rebates, or rewards, are a percentage refund on your purchases, either by check or by credit, to your account. Discounts actually reduce the price on the bill before you pay it. Discover offers rebates on all purchases.

On the principle that it's always better to keep money in your account than to pay it out and get some of it back later, discounts are better than rebates if the numbers are otherwise equal.

Should I Consolidate My Credit Card Debt?

If you have three credit cards and they all have the same interest rate, it is not beneficial to consolidate these balances as you will end up paying transfer fees or possibly a higher rate.

So, before you start moving balances from one card to another, make sure you understand the credit terms and balance transfer charges. Credit card companies are getting pretty sophisticated in putting up barriers so that cardholders don't keep moving on to the next teaser rate. In the long run, the best advice it to just pay more than the minimum payment on your cards and you will get out of debt that much quicker.

I Was Mailed an Application For a VISA That Accrues Frequent-Flyer Miles. Is This a Good Thing?

It may or may not be. Does the airline fly to places you really want to go? How many dollars must you charge to earn a free ticket? Is the airline likely to be around by then? Are you likely to spend more than you otherwise would, just to accumulate the miles?

Ask yourself questions like these, and you'll have no trouble coming up with the answer.

The "World Wildlife Fund" Mailed Me a Credit Card Application For a MasterCard With Their Logo on it. Should I Apply For It?

This is an affinity card and you need to evaluate an affinity card as you would any other. If you would consider it a good deal in the open market, based on the way you use credit, then it's a good deal. But an expensive card doesn't become a good deal just because a small fraction of the profits are turned back to this organization.

Unless the card is a good deal for you personally, it's a better idea to make a direct donation to that organization - and get a tax deduction.

I Saw an Ad Inviting Me to Call a 900 Number For a Guaranteed MasterCard. Is This a Good Deal?

No. These offers require you to pay up front either for a specific secured card or (worse) for a list of banks that issue secured cards.

Instead, if you need a secured card, apply to a bank that advertises them. Your own bank may offer one, or try looking on line for secured cards. Secured cards typically charge a rather high interest rate plus a card processing fee and an annual fee.

Even better, ask your own bank about getting a secured card there, or referring you. There's no charge for making the inquiry, and I have never heard of a bank charging a fee for a direct application.

Finally, check on-line. With all the great information out there, you should be able to find lots o' good stuff and even apply on the spot!

My Bank Offered to Set Up My Checking Account for Automatic Withdrawal on the Due Date to Pay My Credit Card. Should I Do It?

It depends on the specific terms of the deal. For example, a reduced interest rate is meaningless if you pay off every month anyway.

It also depends on your own spending patterns. If you tend to forget to pay your bills on time, this arrangement can save you some late charges or finance charges. On the other hand, if you forget to enter the automatic withdrawal in your checkbook you may find you're overdrawn and start bouncing checks.

Some consumers have reported problems with disputed charges being paid automatically, or the bank disregarding special requests to alter a scheduled payment. You should carefully weigh the promised benefits against the additional loss of control over your checking account.

What Should I Watch Out for in a Corporate Card?

A "corporate card" is an ordinary card, typically American Express or Diners Club. However, you don't apply for it. It is issued to certain employees of a company for the company's convenience in managing travel expenses. There are a couple of possible problems.

One thing to watch out for is that you may be individually responsible for charges to the card, even though you use it only for business purposes. This can be a problem if your company is very slow to reimburse you for expenses.

I Saw an Ad for a Card I've Never Heard of. What's the Story?

Be careful when applying for credit. Some companies advertise credit cards on TV. The problem is that although the card looks a lot like a Visa or MasterCard, it is only good for merchandise from the company's own catalog. Despite the promise of "discount prices," you will pay more than you would pay in stores or through other mail-order channels.

Most legitimate catalog companies take Visa, MasterCard, American Express, or some combination. You should always pick merchandise for its own qualities not because you're forced into it by the credit card you have.

I Received an Application for a Card and it Didn't State Interest Rate or Fees. Is This Legal?

No. The U.S. Fair Credit and Charge Card Disclosure Act requires issuers of charge or credit cards (including retail stores) to reveal certain basic information in tabular form with the application or the "pre-approved" solicitation. This basic information includes interest rate (APR), annual fee, and grace period. Disclosures must also be provided before annual renewal if the card issuer imposes an annual fee.

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