Choosing a Credit Card
If you’ve never had a credit card before or never had to choose one on your own, all the different types of cards, and variations within the card types, makes picking the right one quite a challenge. However, the good news is that with just a little bit of research, you can find a great credit card that suits your needs. Finding a good card that does not institute hidden fees and charges that can cause you to get behind on your payments, and thusly get reported to credit agencies, will help to build your credit score. And with lenders tighter than ever with their money now, a good credit score is critically important.
First, consider which type of credit card you would like. We’re not talking about specific companies yet; rather, would you prefer a standard card, premium card, charge card, prepaid card, or business card? A standard card offers no frills, lets you run a balance up to a certain credit limit, with a minimum payment due once a month. A premium card is like a standard one except it will include benefits and perks that standard cards won’t, as well as having a higher credit limit; the caveat is that you will have to have a good credit score. Charge cards don’t have a credit limit, but they require that you pay the entire balance each month; the penalties for missed payments are relatively severe so these cards are meant for those with sufficient income and assets. Prepaid cards must be pre-loaded with money; these are mainly used for people who have bad or no credit and wish to begin building their credit score. Finally, business cards are tailored for businesses in order to keep purchase logs organized and business expenses separate from other expenses.
Next, consider how you will be utilizing the card. If you believe you will not be able to pay off your balance every month, obviously look for one with a low interest rate. Conversely, if you know you can pay the balance in full each month, focus instead on the various initial and recurring fees, and the benefits you can receive, such as rewards or travel insurance; or, consider a charge card. If you are in a situation where you would like to transfer the balance from another credit card to a new card, look for one with a low balance transfer interest rate. This is an area that the rates and terms can vary greatly, so take the time to shop and compare. If you are a young adult with no credit, look for a card with low or no standards for previous credit history; but, if you have some cash in reserve, or a parent with cash who is willing to help you establish credit, get a prepaid card. And if you are on your own, with no one to help, and no credit or bad credit, try and find a credit card company that will at least provide you a card with a very low credit limit, even if the interest rate is high; just be sure to pay it off each month. And, as you establish credit, continue to try and find a card with better terms and benefits.
If you take anything at all from this article, let it be this: whichever card you eventually choose, make sure you are aware of ALL the fees associated with it. You need to know the APR for your card as it determines the charge applied to balances extending beyond the payment period; and remember to see if the rate is for an “intro period” or ongoing. You must also know the late payment fee and the annual fee. Most people can find a suitable card with no annual fee, but if you choose one with an annual fee make sure it is affordable for you. Please also inquire as to whether the card applies over the phone payment charges (for those emergencies when you need to make a payment quick), charges for copies of your credit card statement, or charges for purchases made over the credit limit. These are just some of the charges that are possible, as the credit card industry is one of the most “creative” there is.
Now let’s get to the fun part of choosing a credit card: the rewards! Credit card companies offer literally hundreds of different types of rewards and all kinds of combinations thereof. Some companies allow you to choose your own rewards from a set they offer, while others offer awards predefined for a specific card. Examples of credit card rewards include: cash back, reward “points,” airline miles, hotel discounts and discounts on select goods and services. The cash back reward is typically 1% for every dollar you spend, but it can really add up over time. And cash-back cards often give you a higher cash-back percentage on various categories of spending, both ongoing and seasonally. For instance, Discover periodically offers 5% cash back on a category of goods or services for a quarter. In our opinion, cash-back is preferable to other rewards as you are not constrained in the usage of the points. As an example, heavy restrictions are placed on when airline miles can be used; it would be best to receive cash-back and then search for discount airfares (or spend the money elsewhere, as you wish).
There are a considerable number of websites that can help you find and compare credit cards. You can easily find them on the web, but be careful you are not relying on a site that is associated with any of the credit card companies. Check consumer advocacy group sites for recommendations on comparison sites. There are a huge number of cards out there, so choose wisely!