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4 Important Things to Look for When Choosing a Credit Card
In a perfect world, people will all like to live their debt free. It can be a long-term aim for every Money-Crashers reader, however, there will be times when you may be forced to get a credit card.
Like many people, you might have an unending stream of credit card offers sent to your mailbox every day. But picking a credit card seems not like going to the dentist for a root canal. Each invitation can be different, and you need to know some basic information and require time to review carefully. Here are some major factors for you to consider when choosing a credit card.
- 1. The Interest Rate
For a credit card, the interest rate often appears as annual percentage rate (the APR), which can make or break a deal of credit offer if you do not examine carefully. The APR may be either a fixed rate or a variable rate when it is tied to other financial indicators, such as the prime rate.
When the card is under fixed-rate, it will have the interest rate stable from month to month, while a variable rate card could fluctuate during the period. However, don’t be shocked if you find a fixed rate change, because the it is based on some certain triggers, like paying your card late, then the credit card companies decide to change it. But don’t worry, they just have to notify you whenever a change in the rate occurs.
It is typically important to read the terms of a card and ask yourself the following questions:
- Is the APR being provided for a limited time?
- What is the interest rate for the credit card? Is the rate for purchases only, or it applies to balance transfers and cash advances?
- Is the interest rate fixed or variable? Can your actual rate vary from that being offered upon a review of the credit?
Be cautious to some card issuers who usually offer low introductory rates in order to attract new customers, but these teaser rates could jump considerably after the introductory period expires, mostly common a few months to a year. Make sure you get comfortable with the new interest rate in the time of the introductory rate is over.
- 2. The Annual Fee
In the past, cards with annual fees used to be an exception, not the rule. But with the recent card regulations going into effect, those previous cards without annual fees will soon have them as well as other emerging fees.
When it comes to credit cards, many credit customers seem to forget calculating their annual fee when they figure out how much interest is being repaid. Make sure you understand the amount of the fee, and how and when it will be imposed when comparing different cards. Will it take place at the end of 12 months, or at the beginning of the year? Is there any way to waive the annual fee with a minimum charge amount or a certain number of transactions? If you aren’t sure about one of them, call the card’s customer service line and ask about whatever you want to know.
- 3. The Credit Limit
The term means the amount of money that your credit card issuer will be willing to let you borrow. If you are probably using the card to put all your expenses and then paying it off at the end of the month, you may really need a limit high enough to accommodate these charges.
Depending on your credit history, the limit can be somewhere from a few hundred dollars up to tens of thousands of dollars. In case that you’re close to maxing out the credit limit, your credit score could be hurt, and your credit companies could cut it to an amount even lower than their current balance.
- 4. Free period
Also referred to as a grace period, which allows you to avoid finance charges by paying the balance in full before your due date. Checking out whether the credit card offers you a free period is very important if you are planning to pay your account in full each month.
How long is the free period? In normal, if your card contains a free period, the card issuers must mail your bill at least 14 days before the due date in order that you can have enough time to pay. Some good credit cards will give you at least 21 days before starting charging you interest when you make a new purchase. Therefore, the longer the free period, the more money you can save.