Five Factors to Consider When Selecting a Personal Credit Card
Nowadays many credit card companies offer perks to lure new
customers ranging from introductory offers with zero percent
interest for transferred balances, Reward Programs offering
airline mileage and cash back, and discount programs with select
merchants. While these offers may be very enticing, there are
five key factors, none of which include perks, that you should
consider when choosing a credit card.
FEES
One of the first factors to consider when selecting a credit
card is the number of fees associated with using the card and
the totality of all of them if incurred. Companies can charge a
variety of fees with the most common being annual, closure,
over-the-limit and late fees. Because, not all companies charge
the same fees and the level of the fees can also differ, it is
important to read all of the fine print and details that
accompany any credit card offer.
Annual Fee
An annual fee is a membership or participation fee that is
charged for having a card. An annual fee can range from $25 to
$50.
Closure Fee
Some companies also charge a closure fee when an account is
closed. This fee also falls within the $25 to $50 range.
Over-the-Limit Fee
An over the limit fee is assessed when the sum of your purchases
and fees exceed the amount of credit you have available for new
charges. Generally speaking, this fee is around $25.
Late Fee
Late fees are charged when payments are past due. Some companies
assess late fees as early as one day after the payment due date.
Late payments can also trigger an increase in your annual
percentage rate. ANNUAL PERCENTAGE RATE
The annual percentage rate (APR) is by far one of the most
important, if not the most important factor to consider when
selecting a credit card. The APR, which is stated as a yearly
rate, is the interest rate applied to outstanding balances. Low
rates are preferable since this means you will be paying less to
use a credit card. One single credit card can apply a different
APR for balance transfers, cash advances and purchases.
CREDIT LIMIT
You should also consider the level of credit that is being
offered when selecting a credit card. A credit limit is the
amount of money that is available for purchases, cash advances,
balance transfers, fees and finance charges. Credit limits can
start as low as $200 for department store credit cards and go
into the thousands for major credit cards (Visa and MasterCard)
depending on your credit rating and income.
SECURED VERSES UNSECURED CARDS
Another factor to consider when selecting a credit card is
whether the card is secured or unsecured. Users of secured
credit cards pay a deposit to obtain credit. These offers often
appeal to two classes of individuals, those who are very young
and are having a difficult time establishing credit and those
who have blemishes on their credit reports that prevent them
from obtaining unsecured credit. The credit limit for secured
credit cards is usually determined by the amount of your deposit.
Unsecured credit cards are by far the most widely held cards
and tend to have higher credit limits.
GRACE PERIOD
The final factor to consider, the grace period, is the length of
time you have to pay your credit card balance in full without
accruing interest charges. The ideal card will have a grace
period of 25 days or longer. If you carry a balance from month
to month you will pay interest regardless of how many days are
in a grace period with only new purchases being exempt for 25
days. The grace period is usually not applicable to cash
advances and balance transfers.
PERKS AND REWARDS
While not one of the five key factors, I still felt it necessary
to write a blurb on perks. Many credit card companies offer
perks as an incentive to lure new customers and reward loyal
ones. Perks can include a Rewards Program that awards you with
airline mileage and cash back on your purchases. Some cards also
offer discounts at select merchants and credit card
registration, which protects you if your card is lost or stolen.
Unless you are a frequent user of credit, perks should be the
last item you consider when selecting a credit card because the
biggest payoffs tend to go to the biggest spenders.