Knowing the basics of credit cards can help you start the process of establishing good credit while also saving you time, money, and avoiding frustration. Credit cards are not one size fits all, so it’s important to find the right card for your credit history and needs. Here are a few things to keep in mind when choosing a credit card:
- 1. Why Are You Considering Getting a Credit Card?
- 2. Where to Use Your Credit Card
- 3. Limit the Number of Cards You Have
- 4. What’s Your Credit Score?
- 5. How Much Can You Afford to Spend?
- 6. Look at the Interest Rate
- 7. Consider All Fees
- 8. Grace Period
- 9. Rewards Program
- 10. Customer Service
- 11. Introductory Rates
- 12. Pay Attention to the Penalties
- Final Thought
1. Why Are You Considering Getting a Credit Card?
The first question you should ask yourself is why you want to get a credit card. Perhaps you’re looking to establish your credit. If this is the case, you must make sure that you handle your card responsibly. You should avoid using your credit card for expenses you can’t afford and pay the balance in full each month.
Having a credit card doesn’t mean you can spend more money than you can afford, you should stick to your budget and use the credit card to help you improve your credit score.
2. Where to Use Your Credit Card
You’ll want to consider where you plan to use your credit card most. If you travel often, you may want to get a card that doesn’t charge foreign transaction fees. This way, you can use your card without worrying about paying extra fees.
If you’re looking for cash back or rewards, make sure the card you choose offers the type of rewards you’re interested in. There are many different types of rewards cards, so find one that fits your spending habits and offers the perks you want.
3. Limit the Number of Cards You Have
Remember to limit the number of credit cards you have. 1 to 2 is enough. Having too many cards can hurt your credit score and make it difficult to keep track of your finances. And you may be overwhelmed in debt.
Only apply for credit cards that you know you’ll use and that offer benefits that are valuable to you.
4. What’s Your Credit Score?
Your credit score is one of the most important factors in determining which credit card is right for you. If you have excellent credit, you’ll likely be able to qualify for the best cards with the lowest interest rates and fees.
If you have good credit, you may still be able to qualify for a rewards card or a card with a 0% introductory APR. However, you may have to pay an annual fee or a higher interest rate.
If you have fair or poor credit, you may have to look for a secured credit card. This type of card requires a deposit, which acts as your credit limit. Secured cards can help you rebuild your credit if used responsibly.
5. How Much Can You Afford to Spend?
Speaking of budgets, it’s important that you know how much you can afford to spend on a credit card. Just because you’re approved for a high credit limit doesn’t mean you have to use all of it. In fact, using too much of your credit limit can actually hurt your credit score.
Aim to keep your credit utilization ratio below 30%. This means that if your credit limit is $1,000, you should keep your balance below $300.
6. Look at the Interest Rate
Interest rates are one of the most important factors to consider when choosing a credit card. A lower interest rate means you’ll pay less in finance charges on your balance. This is especially important if you carry a balance from month to month.
Be sure to look at the APR before you apply for a credit card. This is the annual percentage rate and it includes the interest rate plus any additional fees.
7. Consider All Fees
You also need to consider fees such as the annual fee, late fee, returned check fee, over the limit fee, balance transfer fee, expedited payment fee, and cash advance fee. These fees can quickly add up, so you want to make sure that the card you choose has reasonable fees.
- Annual Fee: The annual fee is a fee you’re charged for having the credit card. This fee is generally between $25 and $500, depending on the card. Some cards don’t have an annual fee, so that’s something to consider if you don’t want to pay a yearly fee.
- Late Fee: A late fee is charged if you make a payment after the due date. Late fees are typically around $25.
- Returned Payment Fee: A returned payment fee is charged if your payment is returned for insufficient funds. This fee is around $25.
- Over the Limit Fee: An over the limit fee is charged if you exceed your credit limit. This fee is around $25.
- Balance Transfer Fee: A balance transfer fee is charged if you transfer a balance from one card to another. This fee is typically around 3% of the amount being transferred.
- Expedited Payment Fee: An expedited payment fee is charged if you need to make a same-day or overnight payment. This fee is around $15.
- Cash Advance Fee: A cash advance fee is charged if you take out a cash advance from your credit card. This fee is typically around 3% of the amount being withdrawn or $5, whichever is greater.
- Other Considerations: In addition to the fees, there are a few other things you should look at when choosing a credit card. These include the grace period, Rewards program, and customer service.
8. Grace Period
The grace period is the amount of time you have to pay your bill before interest is charged on your balance. Grace periods are typically 21 days.
9. Rewards Program
If you’re looking for a credit card that offers rewards, there are plenty of options to choose from. Cash back, points and miles are just a few of the possible rewards you can earn.
Be sure to consider how you spend your money and what type of rewards would be most valuable to you. There’s no use in signing up for a rewards program that you’ll never use.
10. Customer Service
It’s important to choose a credit card that has good customer service. You never know when you’ll need to contact customer service for help with a billing issue or question about your account.
11. Introductory Rates
For a limited time, you might be given a cheap interest rate. This could be 0% for a few months, or even up to 18 months. You should make the most of this time by repaying your debt as much as possible. This way, you will pay very little (or nothing) in interest when the introductory period ends.
12. Pay Attention to the Penalties
Late payments, going over your credit limit, and other missteps can result in penalties from your credit card issuer. These fees can add up quickly, so be sure to read the fine print before you apply for a credit card. Paying attention to the potential penalties will help you avoid them altogether.
When it comes to choosing a credit card, there are a few things you need to look at. Be sure to consider the reason you want to apply for a new credit card, where to use it, your credit score, how much you can spend and afford it, interest rate, all fees, grace period, rewards program, and more. These factors will help you choose the best credit card for your needs.