Choosing a Credit Card
Consumers today are barraged with offers for credit cards --in their mailboxes, on the television, in magazines and newspapers. The offers are everywhere! So how do you know which card to apply for? It’s not as difficult as it may seem if you know what credit card comparison criteria to consider.
The federal Fair Credit and Charge Card Disclosure Act requires credit card companies to provide consumers with specific kinds of information about their credit card offers. Use this information to compare offers in order to choose the best card for you.
The required information includes:
APR, or Annual Percentage Rate. The APR is the annual rate of interest you will pay on a credit card, e.g. 3%, 7.9%, 19% etc. The higher an APR, the more it will cost you to use a card assuming that you maintain a balance on the card from month to month. Make sure that you know whether an advertised rate is fixed or variable. It it’s variable, as interest rates edge upwards, you’ll pay more in interest if you maintain a balance. Also, be aware that most credit card companies have different APRs for charges, cash advances and balance transfers, and steer clear of cards that will increase your APR (often significantly) if you are late paying another of your creditors.
Periodic rate. This is the APR expressed as a daily rate of interest.
Balance calculation method. This method represents how a credit card company calculates the amount of interest you must pay on any balance you may maintain on your credit card each month. Some methods will cost you more than others. The Adjusted Balance method is the best deal for consumers and the Two Cycle Average Daily Balance Including Purchases is the worst.
Grace Period. The grace period represents the amount of time a credit card company gives you to pay the full balance on a credit card before you will be charged interest on the balance. Obviously, the longer the grace period the better. However, some cards come with no grace period at all, which means that you will be charged interest even if you pay off a card balance by the date that your payment is due.
Fees. The fewer fees associated with a credit card and the lower the fees, the better. The fees may include: annual fee, transaction fee (a fee that you are charged every time you use your card), late fee, bounced check fee, fee for exceeding your credit limit, cash advance fee and balance transfer fee, among others. Beware of annual fees that increase over time as well as cards that charge you a fee for not using them often enough.
Credit limit. This dollar amount represents the largest balance you can have on a card at any one time. Depending on the card and your credit history, your credit limit could range from $500 to $30,000 or even more. Most cards actually have two credit limits -- a limit on how much you can charge and a cash advance limit.
Companies That Help Rate Credit Card Offers
Don’t rely on the marketing information provided by a credit card company to evaluate whether or not a credit card is a good deal for you. That information, often highlighted in big bold letters, is intended to entice you to apply for the card and it only tells you part of the story-- the part that is least important for you to know. For example, you receive a credit card solicitation in the mail stating that you won’t have to pay any interest on your card balance for the first six months that you have the card. However, what is not in big letters is the fact that after the six months are up, you’ll be charged a very high rate of interest on any balances you carry. It’s critical therefore to always read the fine print in a credit card offer. That’s where the really important information is buried.
If you are comparing several card offers, it’s helpful to create a credit card comparison grid on a piece of paper. List each of the criteria to consider at the top of the page and on the left hand side of the page write the name of each credit card. Then create vertical and horizontal columns and fill in the information that applies to each card in the appropriate box.
When you compare credit card offers, it’s also a good idea to consider how you intend to use the credit card. For example, do you plan on paying off your card balance each month or do you expect that you will maintain a balance from month to month? If you anticipate paying off the balance every month, then a card’s grace period and annual fee should be especially important to you. However, if you plan on carrying a balance on your card, then look for a card with a low APR and a consumer-friendly balance calculation method.
One other thing, you may be tempted by a credit card that promises you a reward based on how much you charge on the card. For example, one card may let you earn airline miles while another may donate to a charity you care about. However, these cards tend to make sense only if you pay off your balance each month because typically the rate of interest you’ll pay on your outstanding balance exceeds the rate at which you earn benefits.
There are several web sites that make it easy to find credit cards with attractive terms. They include www.Cardtrak.com, www.Cardratings.com and www.Bankrate.com. Take advantage of their research to find the best card you can qualify for.