A Guide to Choosing the Right Credit Card
Credit cards are a convenient and useful part of most individuals'
financial lives. Choosing the right credit card and then using it
wisely is important and can make large differences in your finances.
Here are the factors that should be looked at as you make your
decision as to which card to apply for:
Some credit card issuers charge an annual fee to help offset costs
that they incur in maintaining accounts. Since so many cards have no
annual fee we generally encourage consumers not to choose a card
that has an annual fee, but there are two exceptions:
Many rewards cards do charge annual fees. It's up to the consumer to
determine if the amount of the reward they will earn by using the
card will overcome the cost of the fee before they apply.
Some people with poor or damaged credit will only qualify for credit
cards which charge an annual fee. Later on, as they rebuild their
credit these consumers may be able to negotiate away the annual fee
or move on to a card that does not charge an annual fee.
Annual Percentage Rate (APR)
The APR is the yearly interest rate or percentage that the
cardholder pays on their outstanding balance in the form of
interest. The larger the balance that the cardholder expects to
maintain, the more important it is to acquire a card with a lower
APR. What is the APR for purchases? For cash advances? For balance
transfers? Is there a penalty rate if you make late payments?
A Balance Transfer is the process of moving an unpaid credit card
balance from one issuer to another, usually to a card with a lower
annual percentage rate to lower interest charges. First time
applicants or consumers without appreciable balances do not have to
consider this option. Others should make sure that balance transfers
are offered by the new bank before they apply. Consumers should also
look beyond the introductory rate offered by the new card to make
sure that the savings will continue past the introductory period.
Charge Cards require that the balance is paid in full each billing
period, usually monthly. There is no APR since there is no balance
carried over. American Express and Diner's Club both have charge
cards for your evaluation on our site. These are rewards cards and
do charge annual fees.
A type of payment card that involves a revolving line of credit that
is issued to the cardholder. They provide flexibility, allowing you
to pay your whole bill at once or over time in increments. If you do
not choose to pay your balance in full each month, you will be
required to make at least the minimum payment and to pay finance
charges on the remaining balance. Credit cards are issued by banks,
credit unions, and some retailers like department stores and
gasoline companies, among others. Because of the flexibility offered
by credit cards, we recommend them for most consumers, but stress
that it is costly to not pay them off in full at the end of each
billing cycle since the rate of interest is likely much higher than
any other type loan.
The Credit Limit is the maximum amount you can borrow using your
card. Make sure that the card you apply for has a credit limit that
far exceeds the total of your monthly spending and expected balance
if possible since staying close to your credit limit, even though
you don't exceed it, may negatively effect your credit score.
Many banks and financial institutions offer toll free customer
service numbers to handle problems. Some issuers provide concierge
services on their premium credit cards. Be certain the issuer
provides the level of customer service you desire before you apply.
Certain key pieces of information must be included in all
solicitations or applications for credit cards. Look for a link to
the disclosure statement on each online application. It will look
like a box with info on interest rates, fees, and other terms for
the card you are considering. Read this information carefully before
Sometimes additional fees apply for cash advances, balance
transfers, charging amounts over your credit limit, and late
An APR that does not change in response to interest rate changes and
conditions. This does not mean that the rate will never change. Just
that the rate is not tied to an index.
A period of time — usually 20-25 days — when you're not charged
interest for purchases you've made. For example, if the billing date
on your credit card bill is May 1 and you have paid your prior
balance in full, you may have until May 20 to pay your new balance
in full. If you do, you will not be charged interest. If your
payment arrives after May 20 — or if you don't pay the entire
balance — you may be charged interest from the date of purchase as
posted. Some accounts have no grace period, which means interest is
charged on purchases from the date they are posted.
A special APR that applies for only a limited period of time.
Sometimes also called a teaser rate. Consumers should make decisions
as to which card to apply for based on the final rate, not the
Debit and ATM cards are types of payment cards that provide a
convenient and secure alternative to cash and checks. They allow you
to make a purchase and to access your bank accounts anywhere through
the use of an ATM machine. These cards are recommended for people
who want the convenience and functionality of a Visa or Mastercard
card without interest charges or late fees.
A point accumulating program based on purchases or transactions made
on your card. These points can be redeemed for the particular
program you enrolled in (e.g. airline, gasoline, etc.) Banks may
charge annual fees to participate in rewards program. Consumers
should consider three things when considering a Credit or Charge
Card which offers rewards:
Will the amount of the reward earned by using the card overcome the
amount of any annual fee and possibly higher APR on balances that
using the card accrues?
Will the consumer actually benefit from the award? Earning points
toward a product or service that the cardholder is not going to use
is not a benefit.
Is the reward convenient? Does flying a particular airline, staying
with a particular hotel chain or using a certain brand of gasoline
make sense for the cardholder's lifestyle?
We generally prefer cash as a reward for it's convenience and
Secured cards are a great first step for those with little or no
credit history. This type of card requires that a security deposit
be made in order to establish a credit line. Your credit line will
typically be equal to the amount of your deposit.
An APR that periodically goes up or down based on fluctuations in
market interest rates as reflected in a published index (e.g., the
prime rate published in the Wall Street Journal).
By law Consumers are given the tools to assess each
credit card in the disclosure information. They should take the time
to look this information over and compare cards from a variety of
Also see: (Glossary of Credit Terms)