You know it takes time to find a pair of jeans that fit perfectly. Same for your golf clubs—they have to be just right for you. You should apply that same thinking when choosing a credit card.
If you pay off your balance every month, a low or no annual fee is more important than a low interest rate (since you’ll pay off the balance before interest accrues). But if you usually carry a balance from month to month, you’ll probably want to choose a card with a low interest rate, even if the card has an annual fee. Beyond that, though, other factors influence whether a particular credit card is a good match for you. Consider these key questions:
1. Is a rewards card a good choice? Rewards cards can sometimes have higher interest rates and/or higher annual fees. Identify the trade-offs and weigh which is more valuable to you. Also consider how the rewards match up with your spending habits. For instance, some rewards cards offer bonuses for spending in certain categories, such as airfare, gasoline or dining.
2. Under what circumstances will the card issuer reduce or revoke rewards? With some cards, you might lose your rewards if you make a payment late. Others give you points that expire after a certain amount of time. Find out the policy so you know what to expect.
3. Does the card offer additional benefits? Some credit cards offer perks for owning the card, such as complimentary elite status with an airline or hotel loyalty program, or free checked bags. Estimate your savings based on how much you would use the benefits.
4. Is there a foreign transaction fee? If you’ll use your card overseas frequently, a low—or no—foreign transaction fee could mean big savings. On many cards, these fees are as high as 3 percent of the transaction amount.
5. What kind of fraud protection can you expect? Federal regulations limit your liability for unauthorized credit card charges to $50. But many issuers have zero liability policies so you aren’t responsible for any fraudulent charges, provided you follow a few rules.
6. Can you manage your account on the go? Being able to check your balance, make a payment, set travel notifications, track and redeem rewards and activate your credit card with your mobile device can be very handy. Check to see if the credit card issuer offers a mobile app that can help you manage your credit card account.
7. What will happen if you fall behind on payments? There are many possibilities. You may face late fees or penalty rates, or lose points or rewards. Some credit card issuers have programs to help you get caught up; others don’t. The Servicemembers Civil Relief Act offers certain protections for individuals on Active Duty and their families.
8. Does the card have an introductory rate? If so, how long does it last, and what’s the rate when the promotional rate ends? You probably don’t want to choose a credit card based on an interest rate that’s only going to last six months. The regular rate—the one you’ll pay when the promotional rate expires—is far more important.
9. How long is the grace period? Some cards start charging interest immediately, while others may give you 25 days before you have to pay interest charges on purchases. Look for a summary table of rate and fee disclosures, which will include a statement that explains how to avoid paying interest.
10. What’s the credit limit? Your credit limit will depend on the type of card and your personal credit rating. A high credit limit can help you improve your credit score, especially if you use only a relatively small portion of it (for example, if you have a $10,000 credit limit, but never carry a balance greater than $2,000).
Financial institutions offer a variety of credit cards, some that enable you to earn cash, merchandise, gift certificates and travel rewards. Some offer no annual fee and no foreign transaction; no balance transfer and no cash advance fees. Which card is right for you? Use a credit card comparison tool to make it easy to find the card that best fits your lifestyle. For more information, click here.