Choosing a Credit Card

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Choosing a Credit Card

The savvy credit card user shops around for good deals, knowing that he or she can save a bundle in fees and interest charges. Thousands of financial institutions and other organizations offer credit cards. If your credit is good, you will have a lot of opportunities, and they will be on good terms for you.

Credit card Websites

Many online sites will compare credit cards for you. They will compare interest rates, rewards, introductory interest rates, fees, and credit requirements. Examples of these credit card marketplaces include creditcards.com and bankrate.com.

What will you use a credit card for?

Different people have different uses for credit cards. That means different needs and priorities when choosing cards.

• 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.
• Carrying a balance. If you will be keeping a balance on your credit card either regularly or just periodically (in other words, you won’t be paying off the card every month), the interest rates will be very important to you. You will want the lowest possible interest rates. 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.
• Balance transfers. Many cards offer a special balance-transfer rate for a certain period of time. Some people get a separate card just for transferring balances. This way, they save some money. 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. When the special rate ends, however, you are back to the regular interest rate.
• Credit limit. 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. If your credit is not very good, you will 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.
• 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? You may find that by paying off your whole balance each month and never getting charged fees, you can "earn" more than you would ever pay.

An example

Review the three credit card offers below. If you are most interested in finding a card with the lowest overall costs, which card would you choose? (The answer is at the bottom of the article.)

If this will be your first credit card

If you do not yet have a credit card but want one, you have many options.

• Department stores. This is how many people get their first cards. The credit limit will be small, usually just a few hundred dollars. But this will be all you need to get started. Use the card regularly, and charge only small amounts. Understand that the interest rate on these credit cards is typically high.
• Your bank or credit union. Another place to apply for a credit card is at your bank or credit union. Many of them offer their own credit cards to their customers/members. If you already have savings, checking, or certificate accounts with them, then they have a history with you and may be willing to extend a credit card to you. Consider trying them first; however, success is not guaranteed.
• Secured cards. A secured card is one that is backed by collateral that can be taken if you should default on your monthly payments. The collateral in this case is a deposit of your money, usually at least $200. They are an effective way to build credit, and they are easy to get. Banks and credit unions offer them.

Answer to credit card offer:

The best choice? Card C. This card is very comparable to the other two cards in most categories and has the longest introductory rate (12 months).