So we have all received those heavy envelopes in the mail containing the newest and (according to the credit card company) “best” deal ever if you sign up now. What many of us never understand is what are the differences. I hope to shed a little light on exactly that: What should you look for when choosing your first credit card? What should you stay away from and what options are out there?
Let’s split this up into a bit of a list so we can organize what we are looking at. There basically 4 things to consider: (1) Interest Rates, (2) Card Rewards, (3) Card Fees or Penalties, and (4) Where you are at financially.
1. Credit Card Rates
In my mind the rate I will pay on my card is the first and foremost concern on my mind. Granted, in general it is good practice to avoid carrying a balance, emergencies crop up and odds are you will end up paying interest (Otherwise credit card companies would be out of business). CreditCard.com’s weekly rate report recently showed that most rates fall between 10% and 25%. Now remember that is an annual rate, which means that for a 12% interest card your monthly payment would be 1% of the balance. Returning to the subject at hand, make sure you know the rates of the cards you are considering. The best card for you may not be the lowest rate, but in my experience it has been so.
2. Card Rewards
A good amount of credit cards out there will offer a variety of reward options including things like cash back, points, and more. Some cards include a “signing bonus” that generally involves extra points or miles that can be cashed in at a later date. The most important thing to remember when considering rewards is “why would the card company offer this?” If it’s too good to believe, you may want to reconsider. Generally rewards cards are legitimate, but you can never be too careful.
3. Card Fees or Penalties
Make sure you read your contract and understand what exactly your credit card company can do. Generally you can expect a late fee to be assessed if you miss a payment, but realize that some contracts allow for rate increases as well. Annual fees are another thing to watch for. You may be OK with an annual fee, but always make sure you know if there is one. Basically, the best way to avoid problems with fees or penalties is to read through your contract thoroughly and make sure you understand it completely.
4. Your Financial Position
The last thing to consider is where you are at financially. What is your credit score? How much do you make? How much do you plan on spending and on what? This is probably the most important thing to consider because this is the point at which you will decide whether or not you even need a credit card. When you decide you do want a card, these questions are what will determine what cards you qualify for and what limits you will be set at.
I hope these points have helped shed some light on what points to compare among credit cards. The bottom line is make sure you know what you are getting into and understand what your options are in different situations.