Evaluating Credit Card Features

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Evaluating Credit Card Features

Not all credit cards are created equal. Based on how you use them, their differences can cost you a lot of money in various expenses. Here are some features to look at:

Credit limit

How much of a credit limit do you need? If your credit is good, you will probably be given a fairly high limit, and if you pay it off regularly and don’t max it out, you can qualify for raises in your credit limit as time goes on. Different cards will offer different limits, so if you want a high one, investigate several. If your credit is not very good, you will likely be given a low limit at first, and you will have to prove yourself through disciplined spending and payback before you can qualify for a raise. But again, investigate several cards.

Rewards

Many card issuers offer rewards to encourage you to use their cards. These rewards are in the form of points that can be redeemed. How much is the reward (1% cash back is common) on the cards you are looking at? Is there flexibility in how you can take it? Do the rewards expire? Are there limits to how many points you can earn? Are there restrictions on redeeming your points?

Some people like to use a separate rewards card for purchases that they know they can pay off each month (they save up the money ahead of time) and on which they won’t have to pay interest or fees. This way, they accumulate their points, redeem them, and come out ahead without having spent anything. These people deliberately choose cards that have the best rewards programs (they also usually have excellent credit). For those with great credit, a card issuer might raise the cash-back percentage periodically.

Some card issuers charge extra for rewards programs, and some don’t.

Balance transfers

Balance transfers usually come with an enticing proposition: transfer your balance from one card to another and pay little or no interest for a certain period of time. These offers are common to first-time cardholders, but if your credit is good, you can be offered them time and time again.

There is usually a fee for this service, such as 3% of the transferred balance. Weigh that against how much you would save in interest during the promotional period, and you can judge whether it’s a good idea for you. Just remember that when the promotion ends, you are back to the regular interest rate on that transferred balance. Look at how that regular interest rate compares among different cards.

Some card users like to use a separate card for balance transfers.

Things you might miss if you don’t read carefully

Look carefully in the fine print for things such as these:

• The right to raise your APR at "any time for any reason."
• Universal default, in which the card can raise your APR if you make a late payment on some unrelated card or loan. Phrases like "defaults to other creditors" will tip you to this.
• Other fees beyond the ones most people are familiar with.