It’s
everywhere you want to be. For everything else,
there’s MasterCard. Don’t leave home
without it. Credit cards are everywhere
– and their slogans make it clear. In the
past decade, more and more companies have jumped
on the credit card bandwagon to provide ‘affinity’
credit cards, branded credit cards and credit cards
that offer rewards for their use. You can get cash
back, cash donated to your favorite charity, cash
in on your credit spending with airline miles and
tanks full of gas and more. There are credit cards
for those with bad credit, poor credit, no credit
and outstanding credit. There are credit
cards with low fees, no fees, variable fees and
fixed rates. There are even credit cards
that aren’t credit cards.
With
all the bits of plastic floating around, how do
you choose the right credit card?
Let’s take a look at the various reasons that
people give for having credit cards and see which
kind of credit card is right for you.
I like
to keep a record of what I spend.
If
your only reason for having a credit card –
or your major reason – is because it’s
very easy to keep records of your spending, then
your best choice is a charge card like American
Express. Charge cards allow you to purchase
items and pay for them later – as long as
you pay off the entire balance each month. Because
of that, American Express tends to be the card of
choice for businesses and employee spending accounts.
As long as the bill gets paid each month, there’s
no finance charge. You pay an annual fee and get
a full, clear record of your spending for tax purposes.
I can
pay for it next month. –or- I don’t
like to carry cash.
Charge
card again. As long as you’re able to pay
your balance off each month, a charge card is the
least expensive choice for credit.
I want
it now, but I can’t pay for it all at once.
The
card you want is a credit card like MasterCard or
Visa. Credit cards allow you to make larger purchases
that you couldn’t pay for right now, and pay
it off a little at a time over the next several
months or years. Essentially, a credit card is a
pre-approved line of credit. The credit card company
sets a spending limit, and as long as your balance
stays below that limit and you pay at least the
minimum amount they tell you each month, you can
use it to make purchases for which you’ll
pay over time.
I like
to make the most of my money.
Many
credit cards come with special ‘incentives’
to get you to use them. The most common are ‘cash
back’ incentives. For every purchase you
make, you’ll be credited a percentage –
usually 1-2%. Most often, the credit card company
will mail you a check for the amount you’ve
earned periodically. You can get a 1-2% discount
on anything you buy – but it’s offset
by the credit card fees and interest that you’ll
be charged.
I have
no credit at all, and need to establish some.
Look
for a credit card with a low spending limit and
a low interest rate. Use it carefully, and be sure
to make at the very least the minimum payment every
month.
I have
poor credit and need to start rebuilding it.
Secured
credit cards are one of the best ways to rebuild
your credit. You deposit a specified amount into
a ‘security deposit’ - a bank account
with the financial institution that issues your
credit card. That amount is usually 100-150% of
the amount of your spending limit. If you want $100
worth of credit, you deposit $150, for example.
That money remains in your account. You use your
credit card just like a regular credit card, and
make your payments on time. If you miss a payment,
or default on the card, the bank can draw it from
your security deposit.
