What Will You Use a Credit Card For?

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What Will You Use a Credit Card For?

Different people have different uses for credit cards. That translates into different needs and priorities when choosing cards. A card company, of course, wants you to use your card for all possible uses; it can make the most money out of you that way. But your priorities will probably differ from theirs.

One-time use and payoff

Some people like to pay off their balance every month so that they never carry a balance. Most cards will not charge interest if you pay off the balance in this manner. Therefore, a long grace period is a priority to them. No annual fee is also a priority. A generous rewards program is important because these users rack up money or travel rewards this way; some users come out ahead by planning their spending appropriately. They save up cash for a purchase, pay for it with a card that offers rewards, and then pay off the whole balance right away, avoiding interest and fees while earning the rewards on it.

Finally, if you intend to pay off your balance each month, the interest rate probably is not a priority for you.

Carrying a balance

If you will be keeping a balance on your credit card either regularly or just periodically, the interest rates will be very important to you. You will want the lowest possible interest rates, not just for regular purchases but also for cash advances. You might also want the lowest possible introductory rate, and you should note how long it lasts before it reverts to the regular rate.

An annual fee is something to think about here. Don’t dismiss it as all-bad. A card may charge an annual fee but a low interest rate to compensate you for the annual fee. If you carry a balance, you might find this to your advantage, depending on the size of the balance. Other cards might waive the annual fee but compensate by charging a higher interest rate, which could cost you extra over the course of the year.

If you are prone to making late payments or doing other things that trigger fees, you will want a card with the lowest possible fees. But remember that these triggers can also raise your interest rate as well as damage your credit rating.

Balance transfers

You might get a separate card just for transferring balances from other cards because it offers a special balance-transfer rate for a certain period of time. Do you plan to have the whole balance paid off while the special rate is in force? Then a card with the lowest rate is for you.

There is likely to be a balance-transfer fee, such as 3% of the transferred balance. Factor this in with the balance-transfer interest rate to get the full picture of how much you are paying.

When the special rate ends, you are back to the regular interest rate. Your card may send you invitations to do additional balance transfers in the future, though the rates may change for those. That means that if you plan to both carry a balance and do balance transfers with the same card, you will have two different interest rates to contend with. For convenience’s sake, some people like to have one card dedicated to balance transfers and another just for regular purchases.