So you know that the best way to establish your
credit history is with a credit card.
You may have decided to add another credit card
to your portfolio of available credit. Or maybe
you’ve just decided that it’s time for
you to get a credit card and you have all these
wonderful offers filling your mailbox. How do you
decide which credit card offer you should accept?
First, it helps to know what all those terms and
acronyms mean. If you don’t know what an APR
is, or how a few points of difference in your interest
rate can affect your payments, take a look at our
article “What
Does It All Mean?”
Even when you do understand all the language, it
can be a challenge to figure out the best offer
for you – because what’s best for your
Aunt Sally may not give you the best card for your
needs. You need to understand your own buying habits
and the way that you pay bills to decide which of
the many offers out there will be the best one for
your finances.
Among the factors that you should consider when
deciding what credit card will give you the best
benefits are: the APR – both introductory
and actual, annual fees, member benefits, rewards
programs and other member card services.
Annual Fee
Some credit cards charge an annual fee for use
in addition to interest on a carried balance. The
fee can be anywhere from $29 to $99, depending on
the member benefits and other factors. Why would
you choose a card with an annual fee?
In some cases, a card with an annual fee may be
your only choice. Often, cards with annual fees
are easier to get than those with no annual fee.
You may also pay an annual fee for charge cards
like American Express that don’t count on
interest on carried balance for their profit.
In addition, some credit cards with an
annual fee may offer special member benefits,
like membership in buying clubs that offer discounts
on services and goods that you use often. In general,
though, a card with an annual fee will be low on
your list of desirable credit cards.
APR
A low annual percentage rate should be high on
your list of desired features on your credit card
if you regularly carry fairly large balances on
your credit card. The higher your APR, the more
you’ll be paying in interest charges each
month. The difference between 10% and 15% can be
substantial on a fairly large balance over time.
Introductory APR
A low introductory APR can be very attractive
if you decide to transfer a balance from another
credit card – and can pay it off within the
introductory period. For example: suppose you are
carrying a balance of $3,000 on a credit card with
an 18% APR. You’re offered a credit card with
a 0% introductory APR that is good for 9 months.
If you can pay off that $3,000 in 9 months, you’ll
save nearly $400 in interest charges, minus
any fees that you have to pay to transfer the balance.
Do be aware of the rate that will be valid at the
end of the introductory rate, though – if
it’s higher than the one you’re already
paying, chances are it won’t be a good deal.
Rewards Programs
What if you’re offered two credit cards
with equal APRs, equal fees – but different
rewards programs? Then it becomes a personal choice.
Would you use frequent flyer miles? Are ‘gas
points’ more valuable to you than a lower
amount of cash-back? Does one of the cards offer
discounts at stores that you shop often, or on items
that you use frequently? All of those things should
factor into which card is the best one for you.
Other Member Benefits
Many cards offer other member benefits that may
be valuable to you. You may find cards that offer
travel insurance at no charge, or insure any item
that you purchase with their card against breakage
for a certain amount of time. How about their online
access and bill payment services? Can you access
the information you need easily? What sort of protection
do they offer against unauthorized spending?
While a single factor like APR
may be enough to attract you to a particular credit
card, keep in mind that you’re applying for
the whole package. Check all the fine print and
compare everything to be sure that you’re
choosing the best credit card for you.
