Credit cards can be a great substitute for cash; they allow you to pay for items with your own funds later and are especially helpful in emergency situations. More importantly, though, their biggest benefit is perhaps that they also provide you with the ability to build you credit, which is important to have when you go to make large purchases like your first home or a vehicle. In fact, some may argue building credit should be the primary use of a credit card.
However, they can also be a detriment with higher interest rates and late fees if not paid off in time or regularly. In order to ensure you are getting the best credit card for your lifestyle and budget, here are three things to look out for when getting a credit card:
- Annual Percentage Rate (APR). Your APR is the rate at which your card accrues interest. In simpler terms, it is the rate you pay per year on borrowed money. Those who plan on or are able to pay their balance off in full each month will not need to worry about this as much, but it is still a safe bet to compare and contrast APR’s, especially if this is your first credit card. The lower this number is, the less interest you will have to pay. Rates will typically vary in a range, commonly starting from around 11% to 22% or higher.
- In recent years, interest rates are actually becoming based more on the cardholder’s credit score. If you are still trying to build credit, a single fixed-rate card versus a variable rate option may be the best choice for you. Cardholder beware though; paying late or going over your credit limit can still cause fixed interest rates to change.
- Don’t be lured in by promotional rates without reading the fine print. Be completely aware of when rates will go up to normal. You will be able to review any information sent to you or published on the companies’ websites.
- Fees and penalties. Finding a card with reasonable fees will be important in your search. In addition to penalties for late repayments, other fees may apply to your credit card. These commonly include:
- Balance transfer fees.Benefits of transferring existing balances from one card to another would be a promised decreased interest rate. However, this is only beneficial if the balance transfer fees are less than what you would be paying on your original card, including interest.
- Annual fees. You may want to look for cards without any annual fees. Be sure to make sure advertised waived annual fees are part of the credit card policy and not just a temporary promotion.
- Foreign transaction fees. Purchases made on the card outside of the United States. Cards do exist without any foreign transaction fees; it all depends on your lifestyle and what you need in a credit card.
- Cash back/loyalty points. Incentive programs that may suit you best may be ones that give you points or rewards for items you plan to purchase anyway. Be on the look out for rewards programs that may charge extra for utilization though. You will also want to keep an eye out for programs that have flexibility. Many of these offer discounts on gas, groceries or even travel.
- Another incentive some companies offer is to give you cash back depending on how much you spend. You may need to see if you qualify for such an offer, but a lower interest rate may ultimately be a better route for you.
One last thing to keep in mind not mentioned on the list is that credit card issuers can also make changes to aspects of your card, such as the interest rates, but they are required to provide ample notice first. So, be sure to pay attention to any and all paperwork or notifications from the issuers to avoid issues.
Before deciding to sign up for a credit card, make sure you know also have a clear frame of mind of what you plan to use it for with an intention to also pay it back on time. As long as you pay attention to your rates, understand your card and know your spending limits, your credit card can be a very useful tool for you financially.