Tips for Choosing a Credit Card
Wednesday, September 09 at 10:50 AM
Credit cards can offer numerous benefits to consumers, including a convenient way to pay for purchases, the ability to build a credit history, and the potential for rewards. But to make the most of your credit cards, it helps to be an informed consumer. First, remember that any purchase you make with your credit card is a loan that must be repaid. And as with any loan, it's important to select the right product for you and to use it wisely.
To help you maximize the benefits and avoid the potential pitfalls, here are tips for choosing credit cards.
Maximize your ability to get a good credit card by ensuring your credit report is accurate. Correcting inaccuracies may help you improve your credit history and credit score, which card issuers will consider when deciding whether to offer you a card and how they will determine your interest rate and credit limit. You also can find out if an identity thief has opened credit cards or other accounts in your name.
By federal law, you are entitled to one free copy of your credit report every 12 months from each of the three major nationwide consumer reporting agencies (also called "credit bureaus") — Equifax, Experian and TransUnion. Each company issues its own report, and because some lenders do not furnish information to all three of them, it's useful to request your report from each one in order to get a comprehensive view of your credit history. Go to www.AnnualCreditReport.com* or call (877) 322-8228 to order free credit reports or for more information.
If you find errors, each reporting agency provides ways to ask for an investigation and a correction. In addition, you can request a correction directly from the entity that supplied the incorrect information.
Determine what type of card best meets your needs. First, think about how you will use the card. In particular, do you expect to pay your card balance in full each month or carry a balance from month to month?
If you don't pay your card balance in full each month, the best card for you will likely be one with a low Annual Percentage Rate (APR). But if you do plan to pay in full each month, you might instead focus on whether there is an annual fee, rewards or other features.
Shop around and compare product terms and conditions. Although you may receive credit card offers, don't assume these are the best deals for you. If you decide you need to apply for a card, compare multiple products from several lenders. Various websites can help you compare product offerings from different institutions. Federal law requires creditors to disclose important rate and fee information to you before you apply. This allows you to easily compare cards.
Here is additional guidance on how to compare key terms and conditions:
Annual Percentage Rate: The APR represents the annual cost of the credit. In general, there are three types of APRs that might be applicable to your card: those for purchases, for balance transfers from another card and for cash advances. Also pay attention to introductory rates. Some credit offers, such as balance transfers, come with special low interest rates that will increase after the promotional period.
Fees: These can include annual fees, balance transfer fees and cash advance fees (in addition to any interest you might pay), foreign transaction fees, and penalties for late payments or returned payments. Determine if fees can change over time, as many cards will waive an annual fee for the first year but will charge it in later years.
Rewards: These programs can be complicated, with specific eligibility rules. Know what you need to do to qualify for rewards, which might include meeting spending requirements, and how much you would have to spend to accumulate enough points or miles to get what you want. Also understand what you need to do to maintain your reward points, since they can sometimes expire if an account is closed or considered inactive.
By being smart about choosing a credit card, you can save yourself a headache down the road from unexpected fees and features.