As you shop for a reasonable credit card, here are a few tips that can help you along the way:
Think about your credit quality.
If you have excellent credit, you’ll have your pick of credit card offers and terms. If you have fair or bad credit, however, you may only qualify for higher Annual Percentage Rate (APR) interest rates — and in the long run, those high APR rates can do even more damage to your financial well-being.
If your credit isn’t first-rate, consider rehabilitating your credit before you apply for a new card. Make your payments for existing debt on time, pay down your balances, and do it consistently. As you demonstrate good behavior, your credit score will climb, and better offers will become available to you.
Compare several different credit card offers.
The best way to get a sense of the current credit market is to gather several different offers and compare them. You can find credit card offers (and their disclosures) at financial institutions, on their websites, or through credit card comparison websites like creditcards.com or creditcardtuneup.com.
Don’t apply yet: Just search for the disclosures that come with the application. These disclosures should list APRs for different categories, grace periods, and fees, in that order. By comparing different cards, you can quickly see which terms are more favorable for you, and you’ll stand a better chance of getting a good deal.
Look for low APRs.
The first thing you should see on a credit card disclosure is the APR. If you think you’re going to be carrying balances longer than a month, your best option is a credit card with a low APR. If you pay smaller amounts of interest charges, more of your money can be used for principal debt, allowing you to pay off your balances quicker.
Sometimes, APRs are split into different categories: purchases, balance transfers and cash advances. If you’re planning to use your card for any of these categories more often, then you should pay special attention to that APR.
If you’re offered an introductory APR teaser rate, note the expiration date of the teaser rate. Make sure you understand the terms: Figure out what happens if you carry a balance past the expiration date, and use the standard purchase APR when comparing this credit offer to others.
You should also compare Penalty APRs, which can be charged if you’re late on a payment. Some credit card issuers are more severe than others on penalty rate increases; some issuers are willing to reassess the penalty rate after six months, while others state that the change will remain indefinitely.
Look for reasonable fees.
Some cards have an annual fee, while others do not. Try to avoid the annual fee if you can, unless a stellar rewards program outweighs that cost.
You can also compare late fees, international use fees, transaction fees, and others. If you plan to use balance transfers or cash advances, note if the issuer charges an initial fee (such as 3 percent of the amount) on top of the interest you will pay.
If it sounds too good to be true, it probably is.
A credit card offer may sound good to begin with, but you should always check the credit card disclosure, just to be sure. A low APR may be coupled with exorbitant fees, or include conditions you don’t feel serve your best interests. Read the fine print, and you can make an informed decision you feel happy with.
Michael Camacho is the president and chief executive officer of Personal Finance Center. He has more than 18 years experience in retail banking and with financial institutions in Guam and Hawaii.