It may be hard to know exactly what to look for when choosing a credit card. Use this guide to help you compare choices once you’re ready.
APR/Interest Rate
An APR is the yearly interest rate you have to pay if you don’t pay your bill in full each month. For that reason, it is one of the most important factors to consider. If you have a habit of paying your balance in full each month, this may not affect you. However, sometimes that may not always be the case. Unfortunately, things come up and you have to pay less than the full amount. In contract, if you have a habit of paying the minimum payment, the interest rate is a major factor. If you carry a balance on your bill, you’ll want to choose a card with a low interest rate. This way you don’t end up paying too much in interest.
In addition, some cards may not have a set APR. Some cards have variable interest rates. Simply put, the interest rates changes over time depending on the terms of the agreement. Be sure to read the fine print before applying.
Annual Fee
Many cards, especially rewards cards, comes with an annual fee. Simply, an annual fee is the fee you pay each year to have the card. It is automatically deducted from your balance each year. For some cards, the fee covers benefits such as credits, points, etc. that may be worth the cost. If you are on a budget, you may want to choose a card with no annual fee. On the other hand, if you think the benefits are worth it, choose a card with a fee within your budget.
Rewards and Perks
Previously we talked about annual fees covering credit card benefits. These benefits can include points, credit, rewards, etc. For example, with the Delta SkyMiles® American Express card, you are rewarded with Delta SkyMiles® points for every dollar you spend. While other cards, may offer cash back on purchases. Before applying for a rewards card, do your research. Be sure the rewards offered aligns with your interests and spending habits.
Credit Limit
A credit limit is the maximum amount you’re allowed to spend with that card. Generally, this is chosen for you, except for secured cards. With secured cards, your limit is determined by the amount you deposit. Depending on your credit score and income, the credit card company will set your limit. Even though, the limit is set by the company, with good payment history, you can always request a limit increase in the future.
Other Fees & Penalties
Lastly, review the fine print. This is where any other fees or penalties associated with the card will be located. This includes late fee, transaction fees, foreign transaction fees and over-the-limit-fees. Knowing these fees ahead of time can help you avoid surprises in the future.
Where can you find this information?
When applying for a new credit card, you are presented with the terms. Generally, it is in the form of a table or chart. This is called the Schumer box. The Schumer box is required by all credit card companies in their marketing materials and card agreements in the United States. It summarizes all the information above, usually, in a way that is easy to understand. In addition, you’ll also receive this information when you are approved and receive your card. The box was named after U.S. Senator Charles Schumer, who sponsored the legislation. If you’re applying for a card, you can find it by clicking “rates”, “terms” or something similar.
