Choosing a Credit Card

choosing a credit card With the seemingly endless array of credit card options available, it can be difficult to decide which “the best” is. Banks, credit unions, retailers, and credit card companies all issue credit cards. These plastic cards offer various perks from airline miles, cash-back, concierge services, to store specific savings.

But before you accept the free towel and sign the dotted line, it is important to keep a few things in mind.

Considerations When Looking for a New Credit Card

Why do you need a credit card?

Some people may want a new credit card to transfer a balance so they can save some interest for a few months. Others may use it primarily for work expenses, just for travel, or a student getting their first credit card looking to build their credit. All of the above reasons, and thousands others, are common, and do not dictate the same card as the correct choice for each person. It is important to look at why you want/need a credit card first, before getting caught up in the perks.

How much do you plan to charge to the card?

After the above question, you should think about how much you plan to typically charge. Although this credit limit won’t be completely in your control, it will help you narrow down your sights on a few cards. Perhaps you’re a student building credit and want to maintain a low limit to not get yourself in too much debt at any one time. Or, conversely, a business owner who is seeking a card with no credit limits in order to put ongoing large purchases on it.

How often will you pay the balance in full?

Do you plan to pay off the entire balance each month? If so, perhaps a card with a higher interest rate but much better perks would be best for you. If you plan on carrying a balance, you may want to steer to the lowest interest rate credit card, rather than one with the best perks. Regardless of the exact situation, it is important to be honest with yourself and examine your previous payment and spending habits.

Are you extremely loyal to one specific gas station, bank, airline, retailer, etc?

Some credit card companies offer great benefits to use their card at a specific retailer or merchant. If you know that you only fly on Continental for instance, and travel often, you may want to look at which cards they have to offer. Only fill up at Hess? They probably have a credit card for you.

Important Points to Consider

Annual Percentage Rate (APR) alone isn’t everything

The stated interest rate alone may not be the best indicator of the right card for you. The way APR is calculated can vary, as well as annual fees, teaser rates, perks, etc.

Card perks may hurt

Cards with perks (miles, cash back, etc) may have higher interest rates, or annual fees, which make it actually a worse deal for you than a traditional card. However, if you know your spending habits, and rarely carry a balance, some of these cards offer really great deals. It’s important to see the true savings of any particular costs compared to the increased finance charges, or other fees.

Am I truly pre-approved?

Offers coming in from the mail often proclaim that you are ‘preapproved’ for their credit card, and may even include a fake card with your name on it to get you excited of what’s to come. In reality however, pre-approval doesn’t account for much these days – it simply means the credit card company is aware of your credit score and history, but will still require you to call-in, post-mail, or complete your application online for final approval. This may or may not be at the same terms stated in the pre-approval letter.

Although the right card will not be the same for each individual, a few questions will help any person find the ideal card for them.

Questions to Ask Yourself When Shopping for a Credit Card

Is there an Introductory Rate? What is it and how long does it last?
Is there an Application Fee?
Is there a Processing Fee?
Is there an Annual Fee?
What is the Late Payment Fee?
What’s the Over Credit Limit Fee?
How much are the Balance Transfer Fees?
What’s the Grace Period?
If I go over limit or pay late will my terms change?
Can I Pay Online, and are there any savings for signing-up for Online-only Statements?

Next we cover how to use credit cards wisely…