Don’t leave home with just any credit card. Most lending institutions will be only too happy to fill your wallet with plastic, no matter what your ability to pay or credit history may be. This checklist will assist you with your real challenge: to sort through the array of tempting offers and choose a card that best suits your financial situation.
Consider the APR. The APR, or annual percentage rate, is the actual cost of the card over the span of a year. It includes the interest rate, annual fee, and other service charges. Comparing APRs among cards is a quick way to see which may cost you less. But you'll need to weigh other factors in your decision.
Decide how you'll pay off the card. If you plan to carry a balance from month to month (not a great idea, by the way, because there are cheaper ways to finance purchases), choose a card with low interest rates. If you know you'll pay your balance in full each month, the interest rate is less relevant, and you can focus on other features a card might offer.
Ask what your card can do for you. Some cards give you a little something in return for your business. Many offer frequent-flyer miles for the money you spend. Some, like Discover Card and Ameritech Complete MasterCard, offer cash rebates. Others allow you to accumulate credits toward the purchase of a new car, or to support your favorite charity or your alma mater with each purchase. You're likely to pay a higher annual fee for these cards, so whether the benefits are worth the expense is a decision that only you can make.
Look at annual fees. These can run anywhere from $35 to $90 a year. If you plan to pay your balance in full each month, and aren't interested in frequent flyer miles or other extras, you should have no trouble finding a card with no annual fee. Occasionally, an annual fee may be waived for new customers or for longtime card holders. If you have an excellent credit history, or do significant business with the lender, it couldn't hurt to ask about a fee waiver.
Search for grace. Now here's a reason to read (or at least scan) the fine print. You're looking for the words “grace period,” which translate as the number of days before a lender starts the interest meter ticking on your purchase. On a card with no grace period you'll owe interest from the day you make a purchase, even if you pay the bill promptly. Look for a card with a twenty-five-day grace period.
What's your interest? You'll sometimes have a choice between two types of interest rates: variable and fixed. Variable, or floating rates, tend to be lower than fixed; they're usually tied to the bank's prime rate or the recent cost of Treasury bills. As the name suggests, you can't know from month to month how much interest you'll be paying. Fixed rates aren't exactly carved in stone either. Banks change them every year or so at will, and with no warning.
Beware of introductions. Low introductory rates are a frequent credit card marketing device. These seductively low introductory rates eventually (and sometimes quickly) zoom upward, becoming anything but a bargain. If you do take advantage of such a rate, make sure the lender doesn't take advantage of you. Keep your eye on the expiration of the low rate and switch cards when the time comes.
Watch for other fees. Some card issuers charge a fee when you go over your credit limit. Some charge a late payment fee-in addition to the extra finance charges. And many lenders charge a transaction fee for cash advances on your card, over and above the interest rate for this quick and easy, but pricey loan.
Less is more. Contrary to what many people assume, the fewer credit cards you own, the more impressive your credit rating looks. Prospective lenders tend to interpret multiple credit cards as multiple opportunities to get into debt. Find one or two cards that work well with your spending and payment patterns and keep your credit file attractively slim.
