Has the phrase “pick your poison” ever been more accurate? Comparing credit card offers can be a positively dizzying experience. What is important to someone else might mean nothing to you. (Travel rewards and agoraphobias do not mix.) Interest rate, fees, rewards programs, and member benefits are but a few of the criteria you might want to take into account. Here’s my list of the most important elements to consider:
1. Type of card -- the three basic categories.
• Secured cards are for those who have no credit or bad credit. You will have to lay down security deposit if this is you. Another version of this card is the pre-paid debit card.
• Regular cards have higher credit limits than secured cards but do not have features like rewards programs.
• Premium cards usually boast extra features such as travel insurance, and offer even higher credit limits than regular cards.
2. Interest rate
Fixed vs. variable is an element worth consideration, though there is not as much difference as you would think. Variable rate cards will go up and down as short-term rates change in the larger economy, but are not usually left to the whim of the issuing bank. Federal law actually allows card issuers to change any terms of the card, including its rate, with just 15 days' notice -- which means your fixed-rate card doesn’t offer much more security than one with a variable rate.
If you are one of the few lucky people who always pay your full credit card balance off each month, pay more attention to other factors than this one. Most of us are not so disciplined about paying off our credit cards every month, so a low-interest credit card is one of the first things we ought to look for. The difference between a low 7% APR and a higher 24% APR can add up to thousands of dollars very quickly. Some cards offer an introductory 0% APR, which is great -- just make sure to bail out and switch cards before that rate expires if there’s an exorbitantly higher rate waiting at the other end of the rainbow.
If you want to use the card for cash advances (be careful!), look for a card with a lower APR and low fees on cash transactions. They’re not incredibly easy to find, but they exist.
3. Fees
Cards might or might not have annual fees, over-limit fees, late payment fees, foreign transaction fees, balance transfer fees ... Ugh. Pay attention to all of the fine print, all of it. And if you are committing to something over the phone, make the representative read back anything you are not 100% clear on. Hidden fees can kill you.
4. Incentives and reward programs
Rewards cards can include cash back, frequent flyer miles, travel discounts, auto rental insurance, and lots more. Not everyone gets these card offers, but establishing and maintaining good credit over a period of time will get you there.
5. How the finance charge is calculated
The banks use various methods to calculate your outstanding balance, and this can make a big difference in the monthly finance charge. Find out in advance if the card has a minimum finance charge. Also, your outstanding balance may be calculated over one or two billing cycles, using the adjusted balance, average daily balance, or previous balance. It makes a difference, depending on your purchase and payment habits.
6. Credit limit
Your credit limit will, of course, be determined by your credit history -- though some cards come with a pre-set limit.
When figuring out what the best credit card is for you, remember that credit cards all have unique terms and conditions, which should be fully understood and compared before you even fill out an application. Review Credit Card Offers
