Choosing A Credit Card

How are you going to use the credit card?

Do you plan to pay your balance in full each month? If so, a charge card might be the best option. That's if you have the excellent credit required to qualify for a charge card. Will you be using your card for balance transfers? You should look for a card with a low interest rate on balance transfers.Do you plan to carry a balance from one month to the next? A credit card with a low interest rate is ideal.

What’s the annual percentage rate?

The annual percentage rate, or APR, is the percentage applied to balances that you carry beyond the grace period. The higher the APR, the higher your finance charge will be when you have a revolving balance and the more you'll pay for using your the credit card. Most credit cards have a different APR for purchases, balance transfers, and cash advances. Make sure you know the APR for each.

How long is the grace period?

The grace period is the amount of time you have to pay your balance in full before a finance charge is added. The period is usually expressed in days from the billing date, i.e. “28 days from the billing date.” Longer grace periods are better because they give you more time to pay your bill without incurring a cost for the convenience of using credit. If you already have a balance on the credit card, new purchases may not have a grace period.

What are the fees?

You should know the amount of any fees and the circumstances under which the fees are applied. The most common types of fees include: annual fee, late fee, and over-the-limit fee. You may also be assessed fees for paying your account over the phone on the due date, requesting additional copies of your statement, or for having your check returned.

• Common Credit Card Fees

How is the finance charge calculated?

The credit card company’s method of calculating the finance charge has an impact on the amount of the charge. Some methods consider only the current month’s balance while others consider the current and previous months’ balances. New purchases may or may not be included in the calculation.

• Six Ways Finance Charges Are Calculated
• How to Avoid Finance Charges

What is the credit limit?

The credit limit influences your purchasing power. If you’re new to credit, it’s wise to start out with a low credit limit to become familiar with responsible credit card habits. Some financial situations allow a higher credit limit. Be wary of no-limit credit cards because they can sometimes look maxed out on your credit report. This can have a negative effect on your credit score.

• 5 Ways to Avoid Over-the-Limit Fees

What are the rewards?

Some credit cards offer rewards for using your credit card. Make sure you fully understand the reward structure and the amount of purchases you have to make to receive the reward.