Credit Cards: Knowing This Can
Save You When Choosing One
by Hugh Parker
When it comes to credit cards there are so many choices out there it can be really
confusing when trying to determine which credit card is the best choice.
We are all different with different likes and different habits and credit card companies know this, and have created card fee structures that differ according to peoples habits and circumstances. While a specific card might be perfect for one person, it might not be as desirable for another, and might even hurt that person financially because there habits or circumstances are such that they are incurring fee's that they wouldn't be incurring had they selected a different card. In consideration of the last sentence we really need to identify these habits and circumstances, and then take an honest evaluation of ourselves to see which habits or circumstances we practice or have.
At this point we will be able to better identify the credit card that makes the most sense. In addition to this we will be able to see that different use strategies are appropriate for different habits and circumstances. While there are many habits to examine there are two primary habits that need to be examined first because they the have the most impact on how we should choose, after that we will examine other habits and circumstances.
An outline of habits and circumstances as they relate to credit card holders:
Habit #1 Carrying a balance on your credit card.
This can be a good thing for building and maintaining high credit scores as long as the balance does not exceed 50% of the total available credit. If the balance is substantial than an important card feature for this person should be the annual percentage rate or APR. If this person exceeds 50% of there available credit they should either pay it down or get another card and spread the balance out as this can improve their credit. Typically you should only use between 30% and 50% of your available credit.
The following is a definition of APR.
APR stands for annual percentage rate and is the interest that the issuing bank will charge you. Some banks will advertise an introductory APR. Introductory APR's will generally last anywhere from 6 months to 15 months and then your APR will go to a higher APR. Another type of APR is called a variable rate.
This type of APR generally fluctuates according to an index such as the prime rate or the 1-, 3- or 6-month treasury bill rate or the federal reserve discount rate or the federal funds rate. You can find these indexes listed online. An important note is not which index your issuing bank chooses but rather the formula they use to determine your rate. These formulas usually look something like this, [ index + margin = rate] or [index x multiple = rate] or [index + margin x multiple = rate]. The margin and multiple can be any #. These formulas can make a huge difference in how much money you pay so be sure to read the fine print so that you can determine how your APR will look over the course of you holding the credit card. These are the two most common types of APR but there are others, So by reading the fine print you can be informed.
Habit # 2 Paying our balance in full every month.
If this is your habit then you want a card that has:
- A grace period that says in essence if you pay your balance in full every month that you will not incur a finance charge.
- No annual fee.
- Rewards of some type.
After all there are a lot of card issuers competing for your business you might as well be getting rewarded for using their card, and being a good customer. This person should also be aware of a specific use strategy that is outlined in another article I wrote which can be found in the resource section under Credit Card Articles at my web site which is referenced in the author section following this article. The article is entitled "Credit cards the secrets on how they affect your credit" if this is your habit, seriously, read this, it could mean the difference between good credit and bad credit.
Habit/Circumstance # 3 Traveling
Many people travel often and and don't have a rewards card that rewards them with free air travel. If this is you consider a program that offers compensation for things put on the card in the way of air travel, some of these programs can be generous and offer securities for the traveler.
A friend of mine received enough air miles from his normal card usage to take his family of 5 on a vacation to Hawaii from California and he didn't pay a dime on airfare. A few things to remember about these cards is:
- They often have an annual fee generally ranging from $25 to $75 but if you use your card enough and travel enough this is not a factor.
- Some of them have a slightly higher annual percentage rate but they may also have a grace period so if you pay your balance in full every month than this is not a factor.
- As in the case with applying with any credit card, please , read the fine print.
I just got off the phone with a friend of mine that told me a story that I have heard so many times before, when he was young he got a credit card and didn't read the fine print. Well as you can imagine he used his card in such a way that he incurred fees that he was not able to pay off in a timely manner. Credit cards need to be used properly, when this is done good credit results and thus a position of financial leverage can be attained, when they are used inappropriately bad credit results along with regrets and financially challenging circumstances.
Habit # 4 We shop at specific places over and over again.
If we get gas at the same gas station every week or we drink Starbucks every day or we go to Disneyland every month or we buy books from boarders books every... and the list goes on. If this is us we should try and find a credit card that gives us in the ball park of %1 to %10 percent back toward purchases at our store of interest, others will give1% to 5% cash back on our card for purchases at select stores. Right now the buzz is all about cards that give %1 to %10 back toward gas purchases. With the way gas prices have been rising this is not a bad idea. Some of these cards will also have other great features like no annual fee. and possibly a low introductory APR.
Habit #5 We are sometimes late on our bills.
Many of the credit card issuing banks will raise your APR sharply if you are late on even one payment.
Some times the due date for payment will not only have a day but also a time such as 1:00 p.m. If your 1 minute late your rate is going up as if you had power over when the mail is delivered. If this is you be careful. Just a note, this can happen to anyone after all, unforeseen occurrences happen every day. If this does happen to you its not the end of the world. Usually issuing banks will not report to the credit bureau's for thirty days after the due date so as long as you pay before then you will be ok. You may have a higher APR but your credit won't be hurt and that's the thing you really don't want to happen. On this last point don't take my word for it, find out from the issuing bank what their policy is regarding reporting and select a card accordingly. Trust me this is an important feature to know about
Circumstance #6 Challenged Credit or no credit or never had a credit card before.
If this is you consider a credit card for rebuilding credit such as a secured card.With this type of card you deposit money into an account and then you are given a card that is equal to your deposit, in this way you can not exceed your limit, and just about anyone can qualify for this type of credit card, as well as this you have an opportunity to build credit history, and if you use your card appropriately and pay on time, often times the issuing bank will turn this secured card into an unsecured card.This can be a very affective way to reestablish credit or attain a credit card for the first time.
Circumstance #7 we have an existing balance on a credit card.
Maybe we have balance of $9,000 on a credit card, and we made one late payment on it, and the interest went through the roof however we still have good credit, and we are a good customer overall other than that one late payment. We might consider a balance transfer credit card. Things we want to look for are #1 if there is a fee for transferring a balance to the new card and how much #2 is the balance transfers' APR fixed for the life of the balance or will it go up after 6 months to a year, even if it does go up after 6 months this might be a good strategy if we plan to pay it off before then or if we plan to transfer it again, and sometimes these APR's that go up after 6 months to a year can be 0%. This could make senesce even if our APR was low on our previous credit card because you just can't beat 0%.
Circumstance #8 We have excellent credit.
Then we should be able to find a credit card that has all the features we can reasonably expect at rates that are extremely competitive.
Circumstance #9 we are a student.
Students should consider student credit cards because if they have never had a credit card before they will have a better chance of attaining a student credit card as the issuers give students more leeway. Studies have found that students are often more responsible with credit cards than other youths and are more likely to pay what they owe.
Hopefully this article was helpful. I know that this article did not and could not address every concern facing us when considering how to choose a credit card but these are some of the most asked about topics when it comes to the subject. There are many cards out there that are hybrids and will encompass many habits and circumstances, So then we may not be isolated to one circumstance or habit. If you need more information regarding credit cards credit scores rebuilding credit ext..
Hugh Parker Web site: www.creditcardumbrella.com Compare credit cards apply online. If you would like to read more articles please click http://www.creditcardumbrella.com and visit our resource center. Or if you need a credit card make a comparison and apply online.
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