Knowing This Can Save You When Choosing a Credit Card

Closeup image of a woman holding and choosing credit card to use

When it comes to credit cards, there are so many choices out there it can be really confusing when trying to determine which one is the best choice. We are all different with different likes and different habits. 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 had they selected a different card.

In consideration of that last sentence, we really need to identify these habits and circumstances. We need to 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 which credit card we should choose. After that we will examine other habits and circumstances.

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, then an important card feature for this person should be the annual percentage rate or APR. If this person exceeds 50% of their 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.

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. 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 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.

Debt Relief

Habit # 2 Paying your balance in full every month

If this is your habit then, you want to choose a credit card that has at least one of the following features:

  • A grace period that says if you pay your balance in full every month that you will not incur a finance charge
  • No annual fee
  • Rewards of some type

There are a lot of card issuers competing for your business you might as well be getting rewarded for using their card.

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.

Habit # 4 We shop at specific places over and over again

If we get gas at the same gas station every week, drink Starbucks every day, go to Disneyland every month, or we buy books from Amazon every… and the list goes on. If this is us we should try and choose a credit card that gives us in the ball park of 1-10% percent back toward purchases at our store of interest. Right now the buzz is all about cards that give a percentage 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. The due date for payment will not only have a day but also a time such as 1:00 pm. If your 1 minute late, your APR can go up.

If this is you be careful. 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 Bad credit or no credit

If this is you, consider choosing 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. 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

  • If there is a fee for transferring a balance to the new card and how much
  • Is the balance transfer 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.

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 card because they 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. There are many cards out there that are hybrids and will encompass many habits and circumstances.

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