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What to Consider when Choosing a Credit Card

By: , dated January 25th, 2013

One of the reasons that there are so many credit cards to choose from is that not every card is right for everyone. If you pay off your balance every month, you will want a different card than someone who carries a balance. Also, if you charge enough, you might be willing to pay an annual fee in order to receive rewards like airline miles in proportion to your purchases. Use the sites in this section to find out which card is best for you.

We recommend that you limit yourself to one or two credit cards. This makes it easier to keep track of your balances and to avoid mistakes like late payments and penalties. It can also help your credit rating, since people who have a large number of credit cards tend to be viewed as more of a credit risk.

Some factors that you might want to consider when choosing a credit card:

Fees: This is probably the most important consideration. Fees include the annual fee, the interest rate charged on balances (called the Annual Percentage Rate or APR), late payment penalties, and any other fees they charge. If you plan to pay your bill in full every month (as we strongly recommend), you’ll want to find a card with no annual fee. If you expect to carry a balance, you’ll want to choose a card with a very low interest rate, ideally one that guarantees that low rate for an extended period. Find out if there is a grace period before interest starts accruing, and if so, how long it is. Also find out how interest is calculated (for example, the average daily balance of the last cycle, or of the last two cycles, or something else entirely). Some issuers charge a fixed APR, while others charge a rate that’s tied to an index such as the prime lending rate. Finally, find out whether there are any other charges, and under what circumstances they are assessed. For example, most credit card issuers charge a fee for cash advances, and some charge a fee when you close the account.

Acceptance: Some cards are accepted at more locations than others. The two that are the most popular in the United States are Visa and Mastercard, and both are accepted at just about every merchant who accepts credit cards. American Express, which is a non-revolving credit card, is also relatively popular. If you’re considering another type of card, be sure that it is accepted at the types of places where you will want to use it.

Perks: A lot of credit cards come with benefits, such as rebates and frequent flier miles. Try to estimate the dollar value of any such benefits when deciding which card to select.

Credit Limit: This is the maximum amount that you are allowed to charge on the card (until you pay some of it off). In general, the more they allow you to borrow, the better, as long as you plan to pay the full amount each month. Otherwise, it can be dangerous to have too high of a credit limit, because if you’re not careful, you could dig a hole that’s tough to get out of.

There are several ways to search for credit card offers. The simplest is to open your mailbox, which probably supplies you with a steady stream of credit card offers. But as with most things, the simplest solution is not necessarily the best. Fortunately, the internet can help you track down the best credit card offers. Try to find two or three cards that meet your requirements, and then compare them. Read the fine print, to confirm that you understand all the terms of the agreement.

In order to obtain information on credit cards with low Annual Percentage Rates (APR), visit the Cardweb website. Another source of information is BankRate.

You may currently have a credit card that you’re reasonably happy with, but are getting offers for cards with significantly lower rates. But look before you leap. These so-called “teaser rates” are generally offered only for a very short time period, after which the rate returns to normal (in other words, high). Find out how long the introductory rate will be in effect, and decide beforehand what you will do when the rate goes up. Some people try to jump from one introductory rate to another, but the issuers are making this increasingly difficult because they don’t want customers who do this. Before switching, it’s worth contacting your current issuer and telling them you’re thinking about switching, and asking if they can lower the rate. Sometimes they will do this, because they spend a lot of money acquiring new customers, especially profitable ones who carry a balance, and they don’t want to lose you.

This article was brought to you by the InvestorGuide Staff Writers and Editors.

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