There is almost nothing standard about today’s credit cards. There is so much competition and versatility with credit cards now that choosing them can seem like an incredibly overwhelming task. So much so, that many people make the mistake of applying for the first one that comes in their mailbox without doing the proper research and making an educated decision.
There are at least 7 key factors that should influence your decision to choose a credit card that will work for you and your personal financial situation. Here they are:
1. Choosing a Card Class
The first thing you must decide is what type of credit card is for you. There are several types of credit cards and are usually divided into three distinct categories.
• Premium Credit Cards – Premium credit cards are often referred to as a gold, platinum, or titanium card and typically differ from other cards because they carry a higher limit of credit and usually will offer additional rewards and incentives.
• Standard Credit Cards – Standard cards have a few features and reward incentives available to account holders. The credit limit is not generally as high as a premium card and they do not require any initial deposit of money.
• Secured Credit Cards – Companies that offer secured cards require account holders to make a security deposit, which will create a limit of credit based on the deposit. Secured card companies usually report to the credit bureaus as the other types of cards and are typically a good option for people with no credit or a bad credit history as a way to rebuild their credit scores.
2. Interest Rate
Interest rates on a credit card are either fixed or variable. With a variable rate, the annual percentage rate will go up and down based on the prime rate. A fixed rate card has a rate that remains consistent. However, the reality is that there is not much difference between either term when it comes to credit cards. Credit card companies are back by a federal law that states the issuer can change their terms of the card at any time within a period of 15 days notice. People who tend to carry a balance every month should consider a low-interest credit card. People who tend to pay off a balance in full each month might judge a card by other factors including annual fees.
It is especially important that if you plan to use the cash advance feature of a credit card you understand the terms clearly. Many times the interest rate for cash advances is much higher than the regular interest rate on the card.
3. Type of Fees
Some credit cards will charge fees in addition to the interest rate and purchase amounts placed on the card. Some fees are one-time fees, some are monthly, some are annual. There are fees for going over your credit limit and fees for transferring balances. There are also fees for paying late. Cardholders who do not pay close attention to these fees can be in for a big surprise and a lot of wasted money.
4. Finance Charge Calculations
Different companies used different methods for calculating for calculating finance charges. The finance charge is the amount of money you pay for using the credit card and can be calculated over the span of one or two billing periods and can include new purchases, existing purchases, previous balance, or average daily balance as the calculation basis.
5. Length of Grace Period
The grace period is the number of days you are given to pay your bill before finances charges accrue. The period varies on cards and it is smart to check out which terms will work best for you.
6. Amount of Credit
Your credit limit may be an deciding factor in whether or not to choose the card. Different companies may offer you a credit limit that varies greatly and it is an important decision to make about how much credit you can handle.
7. Incentive and Reward Programs
While it shouldn’t be the basis for any financial decision, reward programs can still be an important factor to consider when choosing a card. The right program for your lifestyle can earn you cash back, online accounting, travel discounts, car rental insurance, frequent flier miles, and much more.
Written by Tisha Kulak
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