How to choose a credit card: Is travel, cash back, or low interest right for you? Your right fit may be wildly different than what your best friend needs. Much depends on your goals and how you expect to use the card. See MyWalletWisdom’s factors to consider based on your lifestyle and expectations. Find the best credit card for you today.
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Know how to choose a credit card that’s right for you? After all, the credit card that’s ideal for me may be wildly different than the one that’s right for you.
Your lifestyle and spending habits matter much when it comes to choosing a credit card. The key is to know yourself, and assess in advance how you’ll use the card.
Below are five things you should know or do before you apply for a card.
They matter because by and large, DEBT prevents you from building wealth. Debt is a ball and chain on you. It can make you feel like you’re in jail. With debt, you’re always trying to play catch-up. And you can’t win at that game.
Do These 5 Things When You Apply For or Choose a Credit Card
Step #1. Before you choose a credit card, check your credit score.
Before deciding what you hope your card will do for you, check out your credit score at AnnualCreditReport.com. You’re entitled to a free report from each credit bureau (Equifax, Experian, TransUnion) every year. After all, the greatest card in the world counts for nothing if you won’t qualify for it.
If your credit is marginal, don’t apply for a card that’ll get you declined. That’ll only hurt your credit rating more. If that’s your case, look for a card designed for folks with fair credit. Also, read about how to boost your credit score, follow those steps now, and apply for the card you want six or 12 months from now.
Step #2. When you choose a credit card, decide how you’ll use it and what you expect from it.
A big part of how to choose a credit card is to decide how you intend to use that credit card. What do you want it to do for you? What’s most important to you? Do you want travel benefits, cash back, or the lowest rate possible? This is all about your lifestyle, spending habits, goals and current debt load. Ask yourself these questions:
- Will you pay your credit card off every month? Then look for benefits, not interest rate. Look for a card with no annual fee and a generous grace period to avoid finance charges. Paying on time is the best way to boost your credit rating.
- Will you use your credit card to pay for everything, a few select things, or emergencies only? If you’ll use it to pay for everything and will pay it off every month, look for a card with a high credit limit and great rewards program. If for emergencies only, look for a no-frills card with low fees and a low interest rate.
- Is the purpose of your credit card to pay down debt? Consolidate loans? Will you carry a balance? If you’re trying to consolidate loans to pay down debt faster, look for a credit card that offers 0% interest for the first 12 to 18 months, plus free balance transfers. If you’ll carry a balance but won’t necessarily transfer other balances, look for the best interest rates. Merge your credit score with potential credit cards that have the features and benefits that are most important to you.
Step #3. Before you choose a credit card, check the interest rate.
This is a big deal if you’re carrying debt and want to repay it fast and build financial freedom. Think of it this way… How can you possibly get out of debt if you keep adding more debt to the pile? High interest payments add to the pile too.
You have to stop creating more debt, which means to put yourself on a spending freeze while finding the lowest interest rate possible to repay it. Honestly, for most people it means ditching their credit cards or hiding them from yourself, so you’re not tempted to add to your debt. If you can’t be disciplined it’ll be tough to dig yourself out even with a low interest rate.
Is the interest rate variable or fixed? If variable it can fluctuate. Oh wait… Even a fixed rate can fluctuate. Certain things can make your interest rate rise. A late payment (on any card, not just the one in question!) can make your rate rise. As can going over your limit. Possibly any other breach of their terms.
Or even just because they decide they want to raise it. Yep, they can really do that. They just have to tell you they’re doing so. It’ll be in fine-point legalese that requires a magnifying glass to read it, and will be mailed to you.
You also want to know how they calculate the finance charge, especially if you won’t pay off your entire balance every month. The most common method – the method you want – adds all the average daily balances together and then divides that by the number of days in that billing cycle. Avoid cards that compute the balance across two billing cycles. You’ll pay much more in finance charges.
Step #4. Know your credit limit – and never come even close to hitting it.
The amount of money the credit card issuer is willing to let you borrow becomes your credit limit. This could be a few hundred dollars or tens of thousands of dollars – depending on your income, assets, and credit history. You never want to even hint at maxing out your credit limit. It’ll crucify your credit score. In fact, it’s best if you only charge up to 30% of your total credit limit.
What’s worse, credit card issuers have been known to cut a cardholder’s credit limit to levels below the cardholder’s current balance. And then slap on an over-limit penalty after they’ve cut your limit and you’re over the new threshold. Nasty.
Of course you won’t know what this credit limit number is at the time of application. You’ll find out once they approve you.
Step #5. Avoid hidden fees and penalties.
There’s no lack of creative ways for credit card companies to grab extra money from your wallet. They can charge fees for balance transfers, cash advances, late payments, or going over your limit. Some charge you to request a credit limit increase or to pay over the phone.
Again, if you’re trying to consolidate loans, look for a card with 0% interest for 12 or more months, and free or inexpensive balance transfers. Avoid late payments at all costs. Seriously, you can never build wealth if you’re paying lofty $39 late fees regularly — let alone interest. Incidentally, late payments also mean you pay interest on your unpaid balance. You could also pay higher rates on all money you borrow after that – from credit cards to mortgages.
Get the Most from Your Credit Cards Without Them Eating You Alive…
How to choose a credit card includes definite rules of engagement for getting credit cards to work for you… instead of them eating you alive. This is true whether you get a credit card that gives you travel benefits, cash back, or a zero percent interest rate.
- Don’t apply for cards out of sync with your current credit score.
- Limit your credit card applications to once every six months. Frequent inquiries hurt your credit score.
- Keep your balance below 30% of your credit limit.
- Choose between the best APR (annual percentage rate) and rewards. It’s all but impossible to have both with the same card.
- If you’re paying down balances, go for the best APR, or interest rate. Once you’re in a place where you can pay off your complete balance every month, switch to a card that gives you other benefits.
- Limit your spending to what you can easily repay every month. Also set some kind of reminder so you always pay on time and never, ever miss that deadline.
- If you have multiple credit cards, request all your credit card due dates to be on the same day of the month. That’ll help you remember your payment date so you never miss a payment. Also streamlines your time. This is one of the best things I do to manage my credit cards. I like the middle of the month, since house and insurance payments are made the first of the month. Issuers often honor such requests, especially if you tell them it helps you remember to be on time with your payment.
Finally, always make at least your minimum payment by your due date. Your wallet will thank you, while it grows fatter. And you get closer to your dreams.