Using Credit & Improving Your Credit Score
How to Choose a Credit Card
February 28, 2016
Credit cards are a convenient part of the financial lives of many individuals. They also are the subjects of intense marketing campaigns from all types of financial organizations. Your mailbox is probably often filled with offers. Choosing the right credit card and using it wisely are important and can make large differences in your finances.
The marketing materials in your mailbox can be confusing and sometimes misleading. Choosing the card that is right for you should be dependent on several factors - fees, rates and benefits for using it. Few credit cards will rank highest on each of these factors and you should choose the card that ranks highest based on how you use it. You should also consider the organization providing the card.
Many cards are offered with no annual fees while others charge up to $50 or $60 per year. Ideally, you would want to choose a card with no annual fee. There are also fees that companies charge for late payments. Be sure to check the terms of the credit card agreement, especially if you are occasionally late with a monthly payment.
Obviously, if you carry over balances and are subject to finance charges, you want a card that offers a low rate. Rates can vary by over 10 percentage points and can exceed 20%. You should also be very careful of low "teaser" rates, or special rates for a limited time if you transfer balances from another card. Another way issuing companies increase the amount you pay is by how they calculate the interest. Be sure to read the details of the agreement.
Benefits for use:
Using a credit card can bring the rewards of airline mileage, discounts on travel, electronic gifts, discounts on cars and other benefits. A rule of thumb is that the benefits are usually worth about 1% of the charges. If a card with these types of benefits is important, make sure the benefits are those that you will use and that the other aspects of the card do not offset the benefits.
Be sure your credit card provides the right combination of fees, rates and benefits. If you do not carry over balances and pay finance charges, you might be willing to accept a card that has high rates and maybe even an annual fee if the benefits were your main focus. However, if you normally pay finance charges or interest, pay extra attention to the interest rate.
You should also evaluate the company providing the card. Be sure their level of service is acceptable. You may also want to consider the benefits of using a card offered by the financial institution where you do most of your banking. Having the convenience of dealing with one institution for all your financial needs can be nice.