If you're in the market for a credit card, you probably already know that choosing the perfect one is a daunting task. With so many different features and things to take into consideration, it's a good idea to do some research before signing on the dotted line.
Here are five questions you should ask when comparing credit cards:
While credit cards are useful in building credit, earning rewards, and helping out in an emergency, they’re also the driving force behind serious financial problems when not used properly. So before you start shopping around for a credit card, ask yourself whether you really need it and what you’ll be using it for. If you want to get the latest gadget but can’t afford to pay cash for it, chances are you’re applying for credit for the wrong reasons.
Many people think late payments are the only negative things that go on your credit report. This is not the case. While paying your bills on time is important, it only counts for a third of your overall credit score. Other factors that weigh heavily on your score are the amount of credit you have and the balances on them. If you already have several credit cards that carry balances close to the limit, applying for new credit will harm your overall score.
On the flip side, if you are trying to build a credit history, opening up a line of credit can actually improve your score
The APR, or annual percentage rate, is the most important number associated with your credit card. Even if you don’t plan on carrying a balance on your card, you should still be concerned with the APR. The interest rate you’re offered will depend on your credit rating, and the better your credit score, the lower your APR will be. As a general rule, anything over 15% is too high.
Even if the only APR you qualify for is higher, it’s not necessarily a deal breaker. Just make sure you pay off your balance every month.
Many cards have fees associated with them. These fees range from sign-up fees, annual fees, transfer fees, and so forth. Usually, the greater the reward the card provides, the higher the fees. Be on the lookout for some of the more commonly unknown fees. For example, some credit card companies charge a fee if you want a paper statement in the mail as opposed to an online statement. Or, if you don’t charge a certain amount on your card within a year, you may be charged a fee.
If you’re going to get a credit card, make sure you get a card that pays you back in some way. Many credit cards offer a wide range of rewards or discounts. Generally speaking, cards that offer attractive rewards require excellent credit. If you qualify, choose a card that offers rewards you’ll use. For example, if you travel frequently, a card that pays you back in airline miles, accommodations, or offers discounts on travel makes sense.
Keep in mind that you may be charged a fee for redeeming your rewards. This is fairly common, but it still pays to shop around and find a card that waives these fees.
With so many options, it can be difficult finding the credit card that meets your needs and minimizes fees and interest. These questions will help you narrow down your selection.