You likely have a seemingly unending stream of credit card offers arriving in your mailbox each week. Each of these credit card invitations can be very different, so you will need to carefully review each offer before you choose the best one for you. There are four major factors that you will need to consider:
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Interest Rate
The annual percentage rate that is associated with the card can make a big difference when deciding on a new credit card. Most cards compound interest monthly, so you would divide the APR by 12 to get the actual cost of borrowing. This is what your purchases would cost you each month if you do not pay the balance in full.
Knowing the advertised APR on its own is not enough however. The introductory rate is not usually permanent, so it’s important to read and understand the card’s terms to answer these questions:
- Is the APR a limited-time offer?
- Is there a minimum purchase requirement that needs to be met to activate or keep this rate?
- Is the rate only for purchases? What about balance transfers and cash advances?
- Is the rate subject to approval? Would your actual rate vary somewhat from what is being offered after they review your credit?
Considering the interest rate variations could bring surprising results. After you look over a card’s terms in more detail, the offer may not look so good as it initially did.
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Annual Fee
Cards with annual fees didn’t used to be the rule but rather an exception. More and more cards that didn’t previously have annual fees may have them soon, and other fees are beginning to emerge as well. This new trend makes accounts without feed even more attractive, but it’s likely that these cards will only be offered to the most qualified borrowers.
Make sure that you understand how fees are imposes as well as when. Is it at the beginning of the year, or will it be added on at the end of 12 months? Is there some way to waive the fee, perhaps with a minimum charge amount or a certain number of transactions? If a fee doesn’t keep you away from a card, you can call the card’s customer service number to ask about having it waived for the first year. They may want your business badly enough that they will give you a pass.
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Rewards
A card’s worth used to be measured by how many rewards an active user could rack up, but the days of getting free flights to Hawaii and fancy hotel stays after a year’s worth of business expenses could be over. Because of economic difficulties and new regulations, users’ rewards are losing value quickly, and it is becoming harder for users to redeem for rewards they really want.
While a card’s reward should be taken into consideration when determining which card to get, it must never be the only factor when deciding on the best card for you. Here are some other points to consider:
- Is the minimum reward requirement difficult to reach or too costly?
- Do points or rewards have an expiration? If so, how long will you have to use your points?
- Does the value of reward points change, and will you be notified beforehand of any changes in the value in time to cash out?
- Are the rewards useful for you? If you don’t travel, for example, airline rewards would be useless.
- Can rewards be transferred? Can you buy extra points if you want to build up your account to make a major redemption?
When used carefully, reward points are a great tool for adding to your discretionary budget. Just be careful that the value of your rewards exceeds what you pay out in interest.
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Convenience Consideration
When a card is difficult to use, this significantly lowers the value of that card. Some cards may offer everyone with an account some amazing additional services. Other cards will reward their members with perks that encourage further spending or create loyalty among their members. Before you make a commitment to a great-looking card, however, consider these necessary conveniences: the ability to pay by phone, online, by email, or by mail; 24/7 customer service; free account alerts; international assistance for no extra charge; and lots of ATM locations.
It may not be easy to find the right card. Take your time, read the terms carefully, call and ask questions if something is unclear, and make sure that everything fits with your financial needs and your lifestyle. In addition, if your current card doesn’t offer very many of the most common credit card benefits, it may be time to look for a new card.
