How do you decide which credit cards work best for you? Read on to find out which credit cards will best fulfill your needs.
You may have come across articles about credit card debts and how you can get rid of them fast. But have you considered the fact that the root of the problem lies in not choosing suitable cards that ties in with your needs and lifestyle?
Don’t make the same mistakes as most folks do. They have no idea how to choose credit cards that best serve their needs. To get the most out of them, always ask these 8 crucial questions.
Card companies have innovated their products so that they can offer something for almost every need.
Now, we have cards that give top-notch travel rewards, cards that refund some of your money back and cards to help you repair or establish credit.
As a consumer, when you look for a card, you have to check the features and determine if they are the ones that would meet your needs.
If you are after rewards because you will use the card frequently, you should be willing to pay the annual fee.
You should also mind the annual percentage rate (APR) vis-à-vis the introductory rate and the interest rate. Interest rates will matter depending on how you will use the card.
For example, even if the interest rate is 20% per annum, it doesn’t matter if you plan on paying off your balance every billing cycle.
Here are 8 good questions to ask when choosing a new credit card:
1. What is your chance of approval?
When it comes to getting approval from card companies or getting the best interest rates, your credit score is your best bet. So, it’s best to know your score beforehand and find out what kind of score you need to have to qualify for a card.
Don’t apply “en masse” for several cards and hope that one or two companies will approve your application.
A credit score above 700 is excellent and credit card companies would probably say “yes” and give you a card with the lowest interest rates.
If you have a score below 550, which is poor credit, you may want to find a card that will help you rebuild your credit.
2. Do you need that new credit card?
You may find a card company’s offer that’s almost heaven-sent: 5% cashback from your favorite shop, zero percent for the next 15 months or a bundle of miles when you sign-up with them.
What you should do is take a pause, step back and do some thinking. Do you need that jazzy piece of plastic?
The first thing to know is whether you will get a lot of benefit from the card.
For example, if you are trying to pay off your existing credit card debt, a card that offers a zero percent promotional balance transfer rate could be a good thing.
This will let you transfer your balance from an existing card to a new one but in the process saving you a substantial amount in interest charges.
But don’t skip the fine print because some cards charge a balance transfer fee anywhere from three to five percent.
In some cases, a new card may go well when you’re planning some lifestyle modification.
For example, if you’ve decided to cook more at home instead of dining out, a card that offers cashback for groceries may be a good choice.
The important thing is that you should be applying for a new card for the right reasons. This brings us to our third question.
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3. What are your spending habits?
Think for a second: how do you usually use your credit cards?
If you are not sure, look at your past credit card statements and see what your normal spending habits are. This information is important to help you find the most appropriate card for your financial situation.
Do you maintain a balance on your cards? Then, a card with a low APR is the best to save on the interest that you regularly pay.
Do you abhor running a balance? A reward card would be most beneficial for you.
Are there big purchases looming in the near future? For that, you’ll need a card with a high credit limit.
4. Is it the best deal for me?
As we’ve mentioned, many credit cards offer rewards of all sorts: airline miles, points, restaurant discounts, or cash back for every dollar that you spend.
This sounds very promising if you are a frequent credit card user.
But it’s still important to get a card that even the rewards fit your lifestyle. For example, if you are a mom who buys your household needs from supermarkets, wholesale clubs and discount stores, a cashback rewards card would be more advantageous for you.
If you often travel, you’d want to get a travel rewards card so you can get airline miles or hotel points for your purchases.
The great thing is that upon signing up, many of these cards would already give you bonus miles as an incentive.
One good thing to remember: rewards cards with generous sign-up bonuses often require a minimum of $2,000 spent during the first few months to entitle you to those lavish miles offers.
But don’t stop with just reviewing the particular features of one credit card.
The better approach is to put their features side-by-side with other cards’ offers.
You won’t see which card stands out unless you compare them. A fair and reasonable interest rate and fee schedule might lure you in.
However, it could well be that other cards have better rates and lower fees.
This does not mean that you spend weeks comparing all credit cards in the market but try to check out at least 3 cards before you choose one.
5. What’s the card’s the APR?
If you’re looking to carry a balance from month to month, it will be to your advantage to be aware of the card’s annual percentage rate (APR).
This is the actual interest rate the would apply to you in case you will not be able to pay off the card in full every billing cycle.
Remember that interest rates would vary as they would depend on your credit score.
Obviously, you’d want to get the lowest interest rate possible so you pay the smallest amount in financing charges.
Card companies print the card’s APR conspicuously in the card application form.
Credit card interest rates range from 10.99% APR to 21.99% APR and as we mentioned, if you have a low credit score you’ll get a higher rate.
Some cards will offer low introductory rates or zero interest on balance transfers and standard purchases – but only for a limited period.
You may also find credit cards that offer fixed or variable interest rates.
A fixed-rate interest will remain constant as long as the card is active but a variable rate can go up or down depending on the direction of the credit market.
6. What’s the credit limit?
Your card company will set your credit limit by looking at the type of card you are getting and your personal credit rating.
Remember to understand the advantages and disadvantages of having either a high or low credit limit.
A higher credit limit gives you better access to more credit and you can use it to improve your credit score by lowering your credit utilization ratio.
You can do this by using only a small portion of your credit limit.
For example, if you have a credit limit of $10,000, never carry a balance higher than $1,500.
The downside is that the issuer may pull your credit report during the application process which could put a dent on your credit score.
7. What Are the Credit Card Fees?
As you now know, all credit cards have an annual percentage rate (APR) which represents the interest rate that the cardholder will pay on the card’s balance.
At times this can vary from month to month as the prime rate or other financial indicators dictate.
The rates may also depend on certain types of transactions because some transactions have a higher financing rate.
For example, you should be careful of balance transfers because they often have a higher interest rate. Often, they also carry a stiff penalty rate if you are late on your payment.
Some card companies are quick to give you a credit card but the catch is, they’ll bundle a lot of fees with it.
For example, rewards cards carry a lot of perks but you will have to pay an annual fee regardless of whether you’re redeeming your rewards or not.
Other fees that they will charge will be for international transactions, balance transfers, cash advances, late payments, going over your limit, and a lot of other things.
Before you give your signature, read the Schumer box – it’s that little box that summarizes all the costs of your credit card.
And go through the fine prints.
Of course, all cards would have fees (nothing is free) but don’t let the rewards sway you if you find that the terms are very disadvantageous.
To avoid trapping yourself with unnecessary debt from fees, scrutinize the terms before giving your okay.
8. Do they report your transaction to the Bureaus?
Take note that your card company may not report to the three major credit bureaus on a regular basis because some of them don’t.
If your purpose for getting a card is to build or improve your credit score, choose a card issuer that will report your activity on a monthly basis to the credit bureaus.
Check the terms of the agreement on the application for this information or call your card company to ask.
All these questions circle around the main thought: getting the most out of your credit card requires managing your accounts so they put you in a most advantageous financial position.
Don’t just accept what your card company is giving you without doing some analysis about it.
Work with your card issuer on how to get the best financial result for your situation and need.
Baruch Silvermann is a personal finance expert, investor for more than 15 years, digital marketer and founder of The Smart Investor. But above all, he is passionate about teaching people how to manage their money and helping millions on their journey to a better financial future.
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