How to Choose a Credit Card

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The right card builds credit while the wrong card slaps you with penalties. Here’s how to tell one from the other.

Step 1: Collect some offers
Collect credit-card offers and information. You can use the Internet, the telephone and visit banks in person if you’d like. Read the fine print on each offer.

Step 2: Limit the fees
Find a card with no annual fee — in most cases, there is no reason to pay or more every year just to use a credit card. Understand any other fees companies charge, including finance charges, credit-limit fees, transaction fees, and balance-transfer fees.

Step 3: Get a grace period
If you plan to pay your balance off in full, make sure the card gives you a grace period of 25 to 30 days to pay off your balance. There are some cards that start charging you interest the second you make a purchase.

Step 4: Find a low APR
Find the lowest possible Annual Percentage Rate, or APR, which is the rate the company will charge you on outstanding balances. Some cards offer an introductory zero percent rate, but that rate will spike after a certain amount of time. Calculate whether the initial offer is worth taking.

Tip
Credit-card companies can change their terms whenever they want, though they will notify you in writing. Read all the pamphlets and letters you get from your financial institution.

Step 5: Understand finance charges
If you plan to carry a balance, understand how your finance charge — the charge for carrying a balance — is calculated so that you know what to expect in your statement each month.

Step 6: Find your credit limit
Find out what credit limit you can obtain. You might prefer a high limit, but a lower limit will help you keep from charging more than you can afford to pay. Either way, there are penalties for going over your limit, so familiarize yourself with those as well.

Step 7: Consider a rewards program
Decide whether or not a rewards program is worth it for you. These programs often charge higher interest rates and finance charges. And remember, if you’re carrying a balance on your credit card, none of these programs can make up for the money you lose paying interest.

Did You Know?
The American credit card industry mails more than 5 billion offers every year.
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