October 13th, 2009
The Fine Print of Shopping For A Credit Card
Choosing the right credit card can be daunting when credit card applications bombard you with unfamiliar terms like variable default rate, cash advance transaction fee, and more APRs than you can imagine. Shopping for your next credit card starts with identifying your spending habits and how often you plan to use your credit card. Are you looking to earn rewards, for an emergency card, or an everyday-use card? Then check out the terms and conditions, especially the ones that affect your particular credit usage. Knowing your credit card and your specific needs before you sign on the dotted line can help you hone in on the key terms that will benefit or cost you.
REWARDS SEEKER – If you are itching for your next vacation, a rewards credit card can get you on a flight to Hawaii sooner. Just make sure you read all the rules and restrictions of the rewards program to make sure your credit usage will qualify you for the flight mileage or travel packages that you want.
- Know what kind of rewards you can get to make sure you are able to redeem enough to make the card worth it for you. If you are a frequent flyer or stay at top-of-the-line hotels, then you can potentially earn lots of rewards from your card. The Starwood Preferred Guest Credit Card is a great choice for jetsetters because it offers one of the best hotel loyalty and airline miles program with the least restrictions. But, in order to take advantage of a bonus 15,000 points on your Starwood card, you would have to spend the equivalent of $15,000 within 6 months to get 3 free nights in selected hotels. If you can hit this spending threshold without going bankrupt, then this is the right kind of card for you.
- Look at the APR for purchases at the bottom of the application because rewards card tend to have higher variable APRs than other cards (you are getting hotel stays and airline flights out of it after all). A rewards card works best for people who don’t carry a monthly credit card balance, or else you might end up paying for the rewards you accumulate many times over in steep interest charges.
- Also, look out for an annual fee; you’ll get the most out of a rewards card by using it regularly enough to benefit from the rewards program that fee pays for.
FOR EMERGENCIES ONLY – You want a credit card handy to back you up for when you have a financial emergency or want to buy a big ticket item. For the times you need credit quick, watch out for any extra APRs or fees that could make you pay extra for credit card features you won’t be using often.
- Cash Advance APR is an important interest rate to check out on the application, especially if you’ll be tempted to use your credit card to withdraw cash often. The rate is often high for most cards and usually upwards of 20% or more, which means even a small $50 cash advance can rack up a $10 fee.
- If you want to use your credit card as a backup to your checking account for the times you overdraw your funds, check out the Overdraft Advance APR, which also tends to be upwards of 20%. Depending on the increments your credit will deposit into your checking, anywhere from $20 to $200, relying on your credit card to keep replenishing your debit can cost you fees and interest.
- Finally, be sure to pay off your balance so you won’t get stuck paying high interest on your occasional purchases. If you only use your card for emergencies or big ticket items, a 0% APR credit card like the Citi Platinum Select Card gives you a 0% APR for the first 6 months, which is like getting an interest-free loan on your balance.
EVERYDAY PLASTIC ADDICT- Your credit card is your best friend, and it goes everywhere with you and pays for everything. For regular plastic users like you, a cash back credit card will give you the most benefits from daily charges.
- Be responsible with frequent credit use and make sure you don’t spend more than you can afford to pay back. One glance at the default APR, which is often double the original APR at around 30% or more, will tell you how much you’ll be paying in interest if you don’t pay your monthly balance on-time and in full.
- Since you may be using this card more than your other credit cards, you might want to think about doing a balance transfer, which will transfer the balances of other cards to one card so you can pay off the balances more efficiently and at a potentially lower APR. Read the fine print on balance transfer APR plus an extra transaction fee for balance transfers. If your card has a lower APR and a 0% balance transfer APR, you can pay off the balance of other cards at a lower interest plus you don’t have to pay extra interest on the transfer.
- Finally, know your credit limit and make sure you don’t end up paying an over-the-credit-limit fee, also covered in the fine print, for all of your regular or impulse purchases that rack up.
- Credit card-addicted users like you benefit the most from a cash back credit card like the Chase Freedom Credit Card, which gives you $50 back on your first purchase and will let you earn more money as you spend. Most cash back credit cards offer around 1% cash back earning power on every purchase, plus a higher rate for everyday purchases, such as Chase’s 3% cash back in rotating categories like department stores, home improvement, and gas.
One last note on the fine print: Despite what the Pricing and Terms page will tell you about the rates, fees, and costs that you should know before you complete your credit card application, these conditions are subject to change according to the issuer and the Prime Rate. Check out the Credit Cardholder’s Bill of Rights for your rights as a cardholder and the new regulations, like a 45 day advance notice on interest hikes, that keep issuers in check.
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It seems the Chase Freedom Card has done away with the 3% cash back in rotating categories. Now there is a different rewards program called Ultimate Rewards which gives you 1% cash back on all your purchases with no minimum and no maximum.