If you’re thinking about getting a new credit card, you probably already realize there are literally hundreds of options available to you. And while many of these options may come from a bank or credit union where you have an account, you probably still have dozens of options for cards offered by other sources.
So how do you choose a credit card? The answer depends on why you want or need the card. There are many things to consider when trying to decide on the right card for you.
The Type of Card
The first thing you will have to choose is what type of credit card you want to acquire. There are several different types of credit cards. College students can choose cards meant specifically for them. Other consumers can choose a regular credit card or a rewards card that offers them an incentive for using the card. Charge cards require you to pay off the balance every month. Which type of card best suits your needs?
Interest Rates
Credit cards charge you a percentage of your balance each month. The interest rate determines that percentage. Some cards have constant, fixed rates and others have variable ones, generally tied to the government prime rate. Fixed rates tend to be higher than variable ones. However, depending on the economy, variable rates can skyrocket. You need to choose which way to go.
Interest rates vary widely from card to card. If you plan to pay off the card balance every single month, the interest rate isn’t terribly important. If you know you’re going to carry a balance over time, look for the lowest possible interest rate.
But be forewarned! Many cards offer a very low introductory rate that you are charged for the first few months or year and then a much higher rate after that period. Choose the card with the lowest full-time interest rate, even if that means skipping a lower introductory rate.
Fees and Penalties
You now need to check the fine print for each credit card. Many cards come with such extra charges as late payment fees, a yearly fee for having the card, or a penalty for taking a personal loan on your credit. Look for a card that has as few of these as possible.
You should also check what triggers a higher interest rate. A late payment or going over your balance can sometimes double — or even triple — your interest rate, so be careful.
Balance Calculation
Credit cards have a grace period, which is an amount of time before you are charged interest on your purchases. Look for a card that has as long a grace period as possible. This is important if you intend to pay off the balance each month, because it gives you longer to pay.
Also, some cards calculate finance charges on a balance based on the “average daily balance,” a term that means the charge is calculated on a 30-day billing cycle. Stay away from cards that use a 60-day cycle, as they can add finance charges on purchases you have already paid off.
Finally, make sure you read everything. Credit card companies work hard to hide their information and it’s your responsibility to make sure you are informed.