When used properly, a credit card can be quite beneficial. If you need to finance a large purchase or want to consolidate debt onto one card, a credit card is the perfect option. Credit cards can also be used for paying off debt or giving your credit a boost.
To get the most out of a credit card, you want to think long and hard before making your final decision. There are many details you’ll want to pay close attention to so that you can ensure you’re selecting the best card for your needs and spending habits.
Keep reading to learn about five factors to consider when choosing a credit card.
1. Your Spending Habits
Before ever getting into the details of a credit card, the first question you’ll need to answer is how you plan to use the card. Are you looking to finance a big purchase? Do you want to pay off debt with lower interest?
Aside from the “what” question, you’ll also need to ask yourself how you plan to use the card. Do you plan to carry a monthly balance or will you pay off what’s due each month in full?
If you plan to pay the bill in full each month, then certain factors like interest rate won’t weigh heavily on your decision. Instead you’ll want to look for a card with a good rewards program and no annual fee.
If you plan to have a revolving balance on the card, you want to look for a low interest rate along with a low introductory rate. By understanding your spending habits, you can choose the card that will provide the most benefit.
2. APR & Interest Rate
Interest rate and APR are worth considering if you will carry a balance on the card. When applying for a credit card, you’ll be presented with an APR, which is the annual percentage rate. When you compare APR credit card offers, you want to not only look at the number, but also whether or not it’s fixed or variable.
A fixed rate card has the same interest rate from month to month because the APR never changes. However, the rates on a variable rate card can change depending on the prime rate and other financial indicators.
Be aware that a fixed rate card’s interest rate can change if you don’t make payments, make late payments, or go over the credit limit. Credit card issuers can change the interest rate as long as they notify you 45 days ahead of time.
3. Fees & Penalties
Remember, credit card issuers don’t offer credit cards for the consumer’s benefit. There are all sorts of fees and penalties that credit card companies charge in order to make money. Some of the most common fees include:
- Cash advance fee
- Balance transfer fee
- Late fee
- Exceeding the credit limit
- Foreign transaction fees
Ideally you want to choose a credit card that comes with low-cost fees. For the best deal, look for a card that offers a promotional period in which there are no interest or transaction fees. This can save you hundreds of dollars.
4. Credit Limit
Your credit history plays the biggest role in determining how large of a credit limit you’ll be approved for by a credit card issuer. Depending on your credit standing you may be approved for a few hundred dollars or tens of thousands of dollars.
What’s important is that you’re approved for the right credit limit. You don’t want to max out the credit card because the credit limit isn’t enough. This can impact your credit score and result in a lowered credit limit in the future.
Credit card issuers offer a wide range of incentives to attract prospective cardholders. There are all sorts of rewards programs that can serve as a great benefit for cardholders. You want to find a program that’s flexible and useful for you.
For example, if you travel often, choose a credit card that offers airline miles, discount hotel stays, and access to VIP lounges in airports around the globe. If you’re an entrepreneur looking to grow your company, find a credit card that offers discounts or cash back on business purchases such as IT equipment or marketing items.
By taking the time to find a rewards program that works for you, you can spend money while getting rewarded. Who could say no to that?
Choosing a credit card isn’t a decision you should make on a whim. With these five factors, you can closely examine each of the credit card options you have to ensure you make the best decision for your financial needs.