How to Compare Credit Cards
Should you go for great rewards, free travel benefits, or just a low interest rate? When you start credit card shopping, you’ll find the options are seemingly endless. Here, what you need to know to make sure the next piece of plastic you add to your wallet is a perfect fit.
Consider your spending. If you regularly carry a credit card balance, consider a card that has a low interest rate. Many card issuers include a 0% APR period, during which you won’t be charged any interest on the balance. This usually lasts six to twelve months, and then the regular interest rate sets in. While the introductory period is a great plus, it won’t last forever. Be sure to check what the normal rate will be before you apply.
If you plan to pay off the balance each month, the interest rate will not matter as much. In this case, look into a rewards card. This type of card usually has a higher APR but gives you the chance to earn cash back, travel miles, or points that you can redeem for other rewards.
Check the fees. Some cards include an annual fee when you sign up, while others do not. Cards with a yearly fee will occasionally offer better benefits than those that do not. You’ll also want to note the other fees attached to the card. Some companies charge a fee for a late payment, balance transfer, cash advance, foreign transaction, and more. Read through the fine print to make sure you know what to expect.
Find the grace period. The grace period is the number of days that the credit card company grants you before finance charges kick in. The longer the grace period, the more time you have to pay off the balance interest- free. Some cards do not include a grace period, and others do not grant you one if you’re carrying a balance from the previous month. So look carefully at the terms involved with the grace period—it could save you a great deal, or cost you a lot in the long run.
Understand the finance charges. This refers to the amount you need to pay for using credit. It is based on the balance that you carry, as well as the interest rate on the card. Companies use various formulas to calculate the finance charges, and it can greatly affect your monthly statement. Some of the common ways used to find finance charges are based on the average daily balance, adjusted balance, previous balance, or two-cycle balances. For an in-depth look at these methods, visit FTC.gov.
Decide how many you need. One, two, five, seven…what’s the perfect number when it comes to credit cards? The number of cards you need will depend on your spending habits and ability to pay off balances each month. As a general rule, try to keep your balances under 50 percent of your credit limit. So if your card limit is $4,000, you’ll want to keep your balance under $2,000. If it gets higher, creditors may see you as a potential risk and will be hesitant to grant you more credit or a loan.
Comparing cards online is easier than ever. At credit card sites, you can search cards based on the card issuer, the type of card you want, or the credit level you have. You’ll also be able to read through the fine print, right on the screen. With a little surfing, you’ll find the perfect card to add to your wallet.