How to Choose a Credit Card
(and Which of Your Existing Ones to Cancel)
by www.SixWise.com
The average American does
not leave home without a credit card. In fact, on average
we don't leave home without four of them. Yet, despite their
popularity, credit card companies are the financial service
that Americans are least satisfied with, according to a J.D.
Power and Associates survey.
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Choosing the right credit card to meet your needs can
save you hundreds of dollars in interest payments or
reward you with bonuses for normal spending.
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On a 1,000-point scale, credit card companies scored a satisfaction
rating of just 658, which is lower than the ratings for mortgage
services, brokerage firms and retail banks.
Part of this dissatisfaction may have to do with choosing
the wrong card for your personal needs.
When used properly, credit cards can provide flexibility
and a range of useful benefits for the cardholder. However,
proper use starts with choosing the right card for you, and
here are some things you need to consider.
1. Will you pay off the balance every month?
People who typically pay their credit card balances in full
every month are known as transactors. If you fall into this
group, you needn't worry about interest rates, but should
choose a card that offers significant reward benefits, such
as airline miles, cash-back incentives, or other retail options.
If you will be carrying the balance, a group known as revolvers,
do not opt for a card that offers rewards. Why? Because they
typically charge higher interest rates, and the amount you'll
spend in interest will likely be greater than the reward's
value. Instead, look for a card with low interest rates (the
average rate on a standard variable-rate credit card is 12.7%,
according to Bankrate.com).
2. Is the Interest Rate Fixed or Variable?
Experts say a low fixed-rate credit card is better than a
low variable-rate card. Do be aware, however, that even fixed
rates can go up when interest rates increase, but they will
have to give you 15 days' notice.
3. Know the Key Numbers
Before signing up, make sure you know these key numbers:
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The APR (annual percentage rate)
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The annual fee (if any)
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The length of the grace period (how long you have to
pay your bill without incurring finance charges)
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Penalties
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Late payment charges
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Over-the-limit fees
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Interest rates on cash advances
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Credit limit
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Under what circumstances the company can raise your interest
rate
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Credit card companies are competing for your business
with offers that can save you money -- you just need
to keep your eyes open for them.
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4. APR is NOT Everything
You must take into account all the variables above when choosing
a card. Also recognize that some cards offer low teaser rates,
such as 0 percent interest for the first six months. These
are a good option, but be sure you know what will happen after
the intro rate expires.
5. Read the Fine Print
Many cards have hidden fees, such as late payment charges,
balance transfer charges, and cash advance charges. So if
you are planning to use a card for a cash advance or balance
transfer, paying special attention to the associated fees
is essential.
Many cards can also raise your interest rate if you have
late payments, and this information may be buried in the fine
print.
6. Watch out for Fee-Harvesting Cards
Fee-harvesting cards often target people with bad credit,
offering low-limit cards. However, a credit card with a $250
limit may then charge a $95 program fee, a $29 set-up fee,
a $6 monthly participation fee, and a $48 annual fee -- which
leaves the consumer with $178 of debt and only $72 of credit,
according to a new report from the nonprofit National Consumer
Law Center (NCLC).
7. Compare Other Features
Aside from rewards programs, some cards also offer travel
insurance, rebates, purchase-protection plans, or extended
warranties. If any of these items are important to you, you'll
have to decide if their value exceeds the extra you may be
charged in higher interest rates.
8. You Can Ask for a Lower Rate
If you have a credit card right now that has a high interest
rate, you can often get the company to lower it just by asking.
According to a survey conducted by the U.S. Public Interest
Research Group, 56 percent of consumers who asked for lower
rates got them. The APRs on their cards dropped from an average
of 16 percent to 10.47 percent, according to Bankrate.com.
So you could easily save a significant amount of money every
year just by making this one phone call.
Recommended Reading
The
10 Dumbest Everyday Mistakes People Make With Their Money
Online,
Phone, U.S. Mail or In-Person: Where is Your Credit Card and
Personal Identify Safest?
Sources
MSN
Money
Bankrate.com
Bankrate.com:
Ask for a Lower Rate
ABC
News October 15, 2007
ConsumerAffairs.com
November 8, 2007