Tips for choosing a credit card
Tips for choosing a credit card
With so many products on the market, it’s hard to know where to start when choosing a credit card. It all depends on what you are looking for. Here are our top tips for four different types of credit card users.
Taking Credit: Four Smart Card Choices
Credit cards offer convenient, instant credit for everyday purchases and unexpected expenses along with a wide range of other features and offerings. A key part of your financial toolkit, knowing why you need a credit card and how you plan to use it will determine what type of card is best for you. Let’s take a closer look at four popular types of credit cards and offer some tips for the type of consumer each will suit best.
Low Fees, Competitive Rates
If you are looking for a card to help you manage your everyday expenses without breaking the budget, then a credit card offering both a competitive annual percentage rate (APR) and predictable monthly payments is the way to go. Look for cards with:
- Low or no annual fees
- Competitive APRs
- Low credit limits.
As your everyday spending card, this is not the place to consolidate debts or run a balance, so you do not need a sky-high credit limit. Nor should you be punished with excessive fees on everyday needs like cash advances or be required to have stellar credit just to qualify.
Preferred or Premium Credit
If you need to manage significant month-on-month spending or want to consolidate existing debts into a single manageable balance then a preferred or premium credit card will offer you the best of both worlds. These cards typically offer:
High credit limits
Low rates and fees
Additional benefits and more flexible payment terms
You will usually need good to excellent credit to qualify for preferred or premium cards, so you can benefit from the lowest APRs while not getting pinged with high fees or onerous conditions.
If you are spending significant amounts of money at the same places month after month, then the right rewards credit card can often earn you more than you might be paying in fees and interest. Rewards cards typically offer:
Competitive interest rates
Low to medium-high credit limits
Rewards for spending, including physical cash back on purchases or points earned towards airline tickets, hotel stays, or other goods and services. While you might find you are paying more in fees or charges than a traditional credit card, if your rewards card benefits are aligned with your spending, you can earn significant value over time.
Secured credit cards are a sensible choice for people just starting out on their financial journey or for those looking to keep control of their spending and rebuild their credit. Secured credit cards allow holders to borrow against collateral held by the lender in the form of a security deposit. Secured cards typically offer:
Competitive APR and fees
Credit limit equal to the security deposit
Incentives to limit borrowing and pay down balances
Although secured cards limit your borrowing to what you already hold, they offer many of the other benefits of a credit card, including:
Predictable rates and fees
Most importantly, regular borrowing and payments on a secured credit card are a great way to improve your credit score.
Choosing a Credit Card That’s Right For You
Everyone’s needs are different and choosing a credit card can be a complex decision. If you are finding it difficult to decide between the merits of two or more card types with similar APRs, then consider the following questions.
Is the APR Variable or Non-Variable?
With interest rates set to rise, more consumers are looking for cards with secured or non-variable APRs. Even if the rate is not the lowest currently available, it will allow you to lock in your APR if prime rates continue to increase for the foreseeable future as expected. Topside Federal Credit Union offers a non-variable rate on all of our cards.
Is There An Annual Fee?
In general, the more bells and whistles a card offers, the more likely it is to charge an annual fee. Fees are most likely on rewards cards or cards issued on behalf of airlines, retail stores, or other vendors. If two cards are very similar, the annual fee could be the difference, and if you take the time to shop around, there are plenty of no-fee cards available.
What are the Balance Transfer Fees?
Balance transfer fees are charged when you move existing balances on other accounts onto a credit card. It is important to compare balance transfer fees on different cards if you plan to consolidate debts on a single low or fixed-rate card. This way you can save money on interest payments while you pay down what you owe. Many cards reduce or waive balance transfer fees for six months as an introductory offer. That’s great if you plan to consolidate your debt right away, but keep the final fee in mind if you think you might want to transfer balances into a lower-interest credit card account in the future.
What are the ATM, Cash Advance, and Foreign Transaction Fees?
Fees on ATM withdrawals and cash advances are common charges that can come back to bite you if you don’t plan for them or you find yourself in a pinch for ready cash. Assume that you will need to withdraw cash at some point. Also consider whether you travel regularly and will need to use your card overseas, even in an emergency.
Fraud and Identity Theft Protection?
Fraud and identity theft are increasingly common and will likely affect you at some point. Are you liable for fraudulent transactions on your card and what are the replacement costs for your card? Some issuers also offer identity theft recovery services to customers whose financial information has been stolen.