When was the last time you heard about a new and improved credit card? Probably the last time you watched television. When was the last time you received an offer to apply for a new credit card? Most likely the last time you checked the mail. These days, the competitiveness of card companies works in favor of consumers, who benefit from the ever-increasing incentive plans offered.
Considering that the average family holds seven credit cards, and the credit card debt held by Americans reaches $800 billion, there are things to consider before sending off an application for yet another credit card. Among them is this key: If you're going to use a credit card, use it wisely. Second, choose the card that is going to work for you (low interest rates, incentives, and services), rather than allowing the credit card company to reap all of the benefits (annual fees, late fees, and high interest charges) from you.
Now that you have committed that one to memory, here are more useful tips:
Tip #1: Put yourself in the driver's seat
When it comes to choosing credit cards, it pays to be proactive rather than reactive. Credit card offers through the mail might be a good place to start shopping, but they are certainly not your only options. According to credit expert Gerri Detweiler, author of The Ultimate Credit Handbook, consumers should not rely strictly on mail solicitations to offer the best choice in credit cards.
Not convinced? You may be surprised to know that those pre-approved credit card offers that you get in the mail are actually advertisements. Your name was retrieved from a mailing list and the letter sent to you is a direct mail marketing tool. Yes, even the special low introductory rate or 0% balance transfer offers-they're a marketing strategy used to get you as a customer.
So where to start looking? Information on credit card plans can be found on the Internet, personal finance magazines, and newspapers. If comparing several different cards, use an unbiased resource. A great place to start is CardRatings.com, the most comprehensive free source for credit card rankings. With reviews from actual card holders, CardRatings.com strives to present an unbiased, yet accurate picture of the best and worst cards out there. Card holders rank cards based on various criteria including fees, rewards, and customer service.
Tip #2: Develop a good understanding of terms, fees and APRs
It's so important to really understand the terms of a credit card. To do this, read the disclosure chart included with every credit card solicitation-usually toward the back or on the reverse of the offer. It lists the purchase interest rate (APR), the length of the grace period, the annual fees, the minimum finance charges, the transaction fees, and late fees. Please consult a credit glossary if you need help understanding these and related credit terms. Also, the Federal Reserve Board has a thorough description of how to translate these terms.
Tip #3: Develop an understanding of credit card features and how they relate to you
Do you prefer travel rewards or cash rebates? Do you prefer better rewards or lower rates? Before choosing a card, ask yourself a few questions to help determine which card is the better choice for you.
1. Which type of card will I qualify for? There are three main categories of cards: secured, regular and reward or rebate. Where you fall on the scale depends upon your credit history. If you're in the process of trying to rebuild your credit, a secured card can help you achieve that. The other categories are differentiated by the types of services they afford. While reward cards generally have great perks, the higher interest rates that they normally charge can be costly if you do not pay your balance in full every month.
2. How do I intend to use the card? Will you carry a balance or pay your bill in full each month? This question carries the most weight in your decision: if you pay your bill in full, interest charges will rarely, if ever, be applied. Therefore, you can take advantage of those cards that offer attractive rewards at the price of a higher interest rate.
If, however, you intend to carry a balance, pick the best card with the lowest interest rate that you can get. Since the rate will be applied each month, you want the very lowest rate you can get, regardless of the lack of incentives available. Please bear in mind that you must have a good credit rating/score in order to qualify for the lowest rates. As a result, we suggest that you know what you credit score is prior to applying for a new credit card.
3. What features can benefit me the most? If you rarely travel, then travel rewards, such as air miles, won't be very useful to you. There are a large variety of reward cards available: Cash back incentives; air miles or frequent flyer miles; rebates towards future purchases on gasoline, gift certificates, and even cash rebates for a higher education savings plan. Be aware that some cards charge annual fees and some don't. If you are looking at one that does, do some math to make sure that the benefits outweigh the fee you will be charged each year.
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