How to Find the Best Credit Card For You

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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 the answers for you. There are a lot of credit card offers out there, but how do you know which 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. We have put together some questions to ask yourself before you apply for your next credit card. These will help you determine the best card for you and your spending habits.

What Should You 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 you understand the terms and costs before signing on. Five key elements to examine are:

  1. What is the annual percentage rate (APR)?
  2. Does the card have an annual fee?
  3. Is the APR fixed or variable?
  4. How long is the card’s grace period?
  5. What are the card’s penalty policies?

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.

Difference Between Fixed Interest and Variable Interest Rate

The interest rate is the rate charged on purchases, balance transfers, and cash advances. It can be fixed or variable. About 70 percent 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 APR, 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.

The bottom line is 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.

What is an Annual Fee?

The annual fee is 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 to $20 for regular bank cards and anywhere from $35 on up for specialty cards. Department store cards do not charge a yearly fee.

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 and we would suggest avoiding 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 as your deposit. If you pay your bill on time and show you can be a responsible cardholder, 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 for 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 to Evaluate a Secured Card

When evaluating a secured card, use the same criteria as you would for any other card. You can ask the bank these questions:

  • What interest is paid on the deposit?
  • If I maintain a good credit record, when could I be considered for an unsecured card?
  • Do you report this account to all 3 credit bureaus?

Also, ask yourself if you might conceivably have a need for the deposited funds during the required term. If so, find out upfront whether you can withdraw the deposit in case of a 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 You 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.

Is a VISA that Offers Frequent-Flyer Miles 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? Will your travel be restricted by black-out dates?

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

Should You Apply for an Affinity Credit Card?

An affinity credit card program allows an organization to offer its members and supporters, those who have an “affinity” for that organization, a credit card branded with the organization’s brand and imagery. Every time you make a purchase with your affinity credit card, your banking institution donates a percentage to the nonprofit partner. So, you need to evaluate any 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.

What Should You Look For in a Corporate Card?

A corporate credit 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.

Is it Legal to Receive an Application for a Card Where the Interest Rate or Fees Are Not Stated?

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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