Friday, March 2, 2012, AM | Leave Comment
With countless companies offering credit cards, some with enticing signing bonuses or reward programs, deciding which card will be appropriate for you can be difficult. Probably the single best thing you can do for the sake of your financial future is make an honest assessment of your spending habits before ever filling out the first application.
Procrastinating or missing payments, overspending and carrying a large balance can all have a detrimental effect on your credit history for years to come. However, if you are mindful of just five simple things, you can save yourself a great deal of money over time.
Understand your particular spending habits and pick a card that is personalized to your needs. Are you the type of person who pays off your balance each month? Do you plan to carry a balance? Will you use the card only for emergencies or will you use it every day?
The answers to these questions all have far-reaching financial ramifications and your particular response will indicate the exact card that is best for you.
If you plan to carry a balance, choose the card that has the lowest annual percentage rate, or APR and understand exactly how that rate is calculated.
Some cards have a fixed rate and others may vary according to the prime rate, or might increase if you make a late payment. Companies can also increase interest rates for no reason at all and are only required to inform you when they do.
Your credit history will dictate exactly how much credit a card company is willing to assign you. Be mindful that going over that limit will incur stiff fees and penalties, so one of the foremost considerations in choosing a card will be how much a company is offering as your credit limit. If it is too low, you could wind up with a penalty for overcharging.
Many card companies are vying for your business and can offer competitive rates and reward programs. If your choice is between two cards with similar interest rates and fees, the deciding factor may be the card offering the sweetest perks.
However, make sure that the company offers things you will truly be able to use, such as cash or travel rewards. Also, make sure the company does not have any hidden fees or charges that offset their reward program.
Card companies have woven fees into every aspect of credit accounts, so be careful to double-check each and every fee in your credit agreement. Balance transfers, late payments and cash advances all have fees associated with them.
While recent legislation has aimed at reigning in these extra fees, they still exist, so educate yourself about the fees charged by your particular card company.
Make sure you understand exactly how interest on your balance will be calculated. Some companies will calculate interest based on daily totals and divide that number by the days in a billing period. Other companies might compute interest based on two billing periods, leading to extra cost for you in the long run. Shop around and choose a card that will have the lowest possible interest.
If you do intend to carry a balance, try utilizing a loans calculator to understand how a certain percentage rate will affect your credit balance over time.
In a Nutshell
Make payments promptly and don`t be afraid to switch to a new card if they offer a balance transfer and improved rates. A credit card can be a valuable asset when you take advantage of incentives and rates that work in your favor and make the card work for you.