Saturday, October 17, 2009

Choosing a Card: What to Look For

Finding the Best Deal on a Credit Card
There are tons of credit cards out there, and they all have different fees, interest rates, qualifications, restrictions, and benefits. You'll want to compare these to find the card that's right for you. Here are some factors to consider:

Annual percentage rate (APR): The APR is a measure of the cost of credit, expressed as a yearly interest rate. Check out the "periodic rate," too. That's the rate the issuer applies to your outstanding balance to figure the finance charge for each billing period. For example, if you have an outstanding balance of $2,000, with 18.5 percent interest and a low minimum monthly payment, it would take over 11 years to pay off the debt and cost you an additional $1,934 just for interest, which almost doubles the total cost of your original purchase. Watch out for low "introductory rates" that will later skyrocket, often after six months. Look instead for a low "fixed rate." But if you're using a credit card like you should, and paying it off completely every month, then you really don't have to worry about this.
Grace period: This is the time between the date of a purchase and the date interest starts being charged on that purchase. If your card has a standard grace period you have an opportunity to avoid finance charges by paying your current balance in full. Some issuers allow a grace period for new purchases even if you do not pay your balance in full every month. If there is no grace period, the issuer imposes a finance charge from the date you use your card or from the date each transaction is posted to your account.

Annual fees: Many credit card issuers charge an annual fee for granting you credit, typically $15 to $55. But there are plenty of cards with not annual fees. The only reason to get a card with a fee is if you absolutely cannot qualify for a fee-free one. And if that's the case, you probably shouldn't have one anyway. See Establishing Credit. If you do choose a card with a annual fee, it may be possible to get it waived if you pay all your bills on time. Call the customer service line and ask.

Transaction fees and other charges: Some issuers charge a fee if you use the card to get a cash advance, if you fail to make a payment on time, or if you exceed your credit limit. Some may charge a flat fee every month whether you use the card or not. Hint: avoid these like the plague. You shouldn't have to pay simply to have a credit card. See above.

Make note of all finance charges that could be applied--there will usually be a chart of them on the application or the terms of agreement. These include various transaction fees, service fees, late fees, and interest rates. Above all, stay away from costly cash advances--most of the time, they're a total ripoff.

Credit Limit: This is the total amount you're allowed to have charged on your account, (including purchases, cash advances, finance charges, and other fees) at any one time. The credit card company will set this limit depending on your credit history. If you're just starting out it will probably be fairly low, maybe even only $500 to $2,000. It will probably increase automatically as your credit score improves; if not, you can always call customer service and ask them to raise it. Try to stay well under your credit limit, so you'll have credit available if you need it in an emergency.

Customer service: This is actually really important, as crappy customer service from a credit card company can make your life miserable if say, you lose your card or get mischarged. Some companies are notoriously bad at giving a brother a break; others have great reviews in that department. Make sure, at the very least, that your company has a 24-hour, toll-free telephone number.

Other benefits: Lots of cards offer cool benefits like insurance (especially travel insurance), credit card protection, discounts, cash rebates, frequent flyer miles, and special merchandise offers. Make sure you look around and see what's out there.

Here are a couple of good places to start when looking for a card. They'll let you compare different types of cards from different credit companies and banks, and even search by different factors such as credit score required, rewards, annual fee, and APR.

E-Wisdom's credit card page

If you're a student, you can also try

Federal Trade Commission's article with more info about prescreened offers of credit and insurance.

See also: Credit Cards main, Establishing Credit, Credit Scores

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