Choosing a credit card

With so many credit card offers to choose from it can be a daunting task to pick the right one.  Not all credit card offers are equal.  Here are some great tips for choosing your next credit card.

Fortunately some of the important information such as the interest rates is now shown in large print (read carefully because there will probably be more than one rate).  Unfortunately some of the details that can eat your cash are tucked away into the fine print. 

Fine print you should read and understand:

How long is the grace period?  If you carry a balance this can cost you!

The grace period is the number of days you have to pay your bill in full without triggering a finance charge. For example, the credit card company may say that you have “25 days from the statement date, provided you paid your previous balance in full by the due date.” The statement date is given on the bill.

The grace period usually applies only to new purchases. Most credit cards do not give a grace period for cash advances and balance transfers. Instead, interest charges start right away.

If you carried over any part of your balance from the preceding month, you may not have a grace period for new purchases, you may be charged interest as soon as you make a purchase (in addition to being charged interest on the earlier balance you have not paid off).

What are the fees?  Credit card companies make huge profits on fees.

• Annual fee (sometimes billed monthly). Get a no-fee card.
• Cash advance fee. May be a flat fee (for example, $3.00) or a percentage of the cash advance (for example, 3%).  This is an expensive loan!
• Balance-transfer fee. Charged when you transfer a balance from another credit card.  If you are going to use this, find a no-fee transfer offer.
• Late-payment fee. Charged if your payment is received after the due date. This is a real money maker for them.
• Over-the-credit-limit fee. Charged if you go over your credit limit. Don’t do it.
• Set-up fee. Charged for a new credit card account.  Find one that doesn’t charge.
• Other fees. Some credit card companies charge a fee if you pay by telephone or to cover the costs of reporting to credit bureaus, reviewing your account, or providing other customer services. Read the information in your credit card agreement to see if there are other fees and charges.

Does the card offer incentives and other features?  This is how you can make some money from using your card carefully.  Unless you travel, the money back is usually the best deal.

• Rebates (money back) on the purchases you make

• Frequent flier miles or phone-call minutes

• Additional warranty coverage for the items you purchase

• Car rental insurance

• Travel accident insurance or travel-related discounts

Before you buy their extra features, consider carefully if you really need it and it is as good a value as they tell you.

• Insurance to cover the payments on your credit card balance if you become unemployed or disabled, or die. Premiums are usually due monthly, making it easy to cancel if the payments are higher than you want to pay or you decide you don’t need the insurance any longer.

• Insurance to cover the first $50 of charges if your card is lost or stolen. Under federal law, you are not responsible for charges over $50.

What is the interest costNote that introductory rates can easily increase and many cards will automatically increase the interest rate substantially if you miss just one payment.

Even people with less than perfect credit ratings can get favorable deals on credit cards if they shop around.  The competition for lending is in your favor.  Here is a handy worksheet to help you evaluate credit cards.  Think about how you are going to use the card, read the fine print, compare the features against how you will use the card, and choose the credit card that is best for you.