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Choosing your credit card wisely can have an important impact on your financial life. The right credit cards can help you save a significant amount each month, make it easier to travel, and can even boost your credit score.
However, when it comes down to applying for a new card, it is crucial to be aware of fees, charges, minimum repayments, and interest rates to avoid wasting your money. In this guide, you’ll find what you need to know about choosing a credit card that matches your needs – and how to get started searching for “the one”!
Applying For a New Credit Card: What You Need To Know
Over the past years, the average credit score in the US has been constantly increasing, reaching an all-time high of 714 in 2021. But while credit cards played a role in helping people become more credit-worth, they also made it easier for consumers to grow their debt. Today, the average consumer debt balance stands at $96,371, while credit card debt is as high as $5,221.
So, should you apply for a credit card? Although a lot depends on your personal finances, the general answer is that, yes, credit cards might be useful. However, before tying your finances into a credit card contract, it is critically important to understand how to use your card and improve your spending habits.
Before We Start: Shopping For The Best Credit Card
No two people have the exact same financial situation or credit file. Because of this, it is important to take a hard look at your finances and goals and choose a card that matches your needs. For example, if your credit score is less than optimal, you might face steep interest rates. In this case, opting for a credit-building or secured credit card might be a more convenient first step.
If you are unsure what are the best credit card deals for your unique financial situation, there are ad hoc websites that allow you to compare credit cards and offers – learn more at CardRates.com.
6 Factors To Consider When Choosing a Credit Card
Choosing the right card for your needs is never easy, especially as so many factors come into play. While talking to a specialized financial advisor should always be your starting point, the factors below are among the most important ones to consider and compare.
Let’s get started.
Annual Percentage Rate
The annual percentage rate (APR) tells you how much it will cost you to borrow money against your credit card. This additional percentage is only applied if you don’t pay your balance in full each month, but it can cause your outstanding balance to significantly swell if not properly managed.
If you are looking to use your credit card to afford major purchases and repay your loan over multiple months, you should consider the benefits of taking out a personal loan instead – especially now that the Fed has increased APRs by an additional 0.25%.
Minimum Repayment
Another important aspect to consider is the minimum payment that you’ll have to make each month to keep your card in good standing. By making a minimum payment each month – which can be a percentage of your outstanding balance (1-5%) or a flat fee (usually $20-25) – you can avoid late payment fees. However, don’t forget that this exposes your debt to interest rates!
Introductory Offer
Credit card issuers can provide you with a welcome bonus or introductory offer, such as lower interest rates for six months. Some credit card providers also offer on transferring balances from another credit card.
It is important to choose a card with the best introductory offer for your needs, especially if you need your new card to afford a large expenditure or transfer a balance from another account.
Reward Programs
Leveraging the right reward program for your needs and lifestyle is a great way to save money while traveling, make your everyday life more affordable, and enjoy unique perks. For example, if you tend to fly or travel often, a credit card that offers rewards in airline miles or hotel points can help.
On the other hand, if you are looking for help with your groceries, monthly discounts and cashback offers can help. Be sure to know what to expect from each reward program and learn about the best way to redeem your rewards!
Charges and Fees
Most credit cards come with fees and charges that you should know about. The most important ones to consider and compare include:
- Annual fees
- Balance transfer fees
- Late payment fees
- Returned payment fees
- Foreign transaction fees
- Cash advance fees
- Over-the-limit fees
Credit Limit
Lastly, don’t forget to check how much you can actually borrow against your credit card. Ideally, you should keep your credit utilization rate below 30% of the borrowable amount. Additionally, you should check whether you can improve your credit utilization rate over time – this can make you appear more trustworthy in the eyes of future lenders.
If you are still unsure about how to find the best credit card for your needs, comparison websites can help – but don’t forget to consult a financial advisor if needed!
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