A credit card seems like a simple product -- that is, until you're searching the universe of more than a thousand different cards to pick "the right one." Which are the real deal, and which are just smoke and mirrors? To make the call, some solid research is warranted.
No single credit card is best for everyone. Your personal situation and usage habits may make some features and benefits more attractive than others. A quick look in the mirror and a close examination of interest rates, fees and rewards should help you pick the card that best suits you.
Know Yourself
Where you are financially and how you plan to use the new credit card should be the two main factors that inform your decision-making. Ask yourself these questions:
How's my credit reputation? The clearest manifestation of your credit reputation is your credit score. A good score may create more opportunities and options as you pick your card. If you have had credit issues in the past or are just starting out, a secured credit card (can we provide a link that explains) may provide a way to build or rebuild your credit reputation.
Will I carry a balance? Ideally, you shouldn't. There's no credit score boost or benefit (other than to the card company) for doing so, but for some people, it's just their reality right now. And if that's the case, a lower interest rate and clear understanding of the minimum payment calculation are important. If you pay the balance off each month (or more often), the interest rate won't be as big a factor in your decision.
Are rewards important? Over the years, I've worked with numerous members who charged everything to get frequent flyer miles, cash or other rewards. Pick the rewards that are most valuable to you and pay attention to the rules and limits of each program. This is essential to making sure you enjoy the rewards.
Learn how points are accrued and how often you will be allowed to use them. Do you have to spend money in certain places or earn more for specific spending? How much do you have to spend before you get a reward worth having? Are there reward restrictions, such as blackout dates for air travel, minimum dollar amounts or increments to redeem, or a capped limit on rebates or benefits?
How will I use the card? Will you use it periodically, as a mainstay of your regular spending, or to consolidate other debt? For consolidators, the term length of introductory rates is important. However, understanding that "credit utilization" -- the ratio of amount owed vs. available limit and a key component of your credit score -- is a snapshot in time could influence your approach to credit cards. Running up $4,900 of your $5,000 limit each month and then paying it off when the bill comes in could paint the wrong picture for a prospective lender. In a situation such as that, a higher limit card or cards could make sense.
Read the Fine Print
Most people shopping for a new credit card look at interest rates first, so most credit-card offers highlight their rates. Lower interest rates are generally better, but if two offers have the same interest rate, a closer look may show they are quite different.
Variable vs. fixed rates. Find out if the annual percentage rate (APR) on the card is variable or fixed. Variable rates usually start lower but can go up or down over time, while fixed rates may start a point or two higher than variable rates. Even if you have a fixed rate -- in certain circumstances and with certain conditions -- the credit-card company may have the right to change your interest rate. Remember, the fine print matters.
Other interest rates. Pay attention to the terms and timelines associated with introductory rates and interest rates for services, such as cash advances or balance transfers. They may be higher than the APR for purchases.
Add Up Fees
Do not let low interest rates distract you from other costs of doing business with a particular company. If you forget to check the fees section of the credit-card disclosure, you may find that your interest savings do a disappearing act right before your eyes. All credit-card lenders charge various fees. Knowing all you can about the fees is key.
Annual fees. First, find out whether the card has an annual fee. Some cards charge an annual fee of $50 to $100, but it can be worth the cost if you will use the card often enough to earn valuable rewards. If not, look for a card with no annual fee.
Late-payment fees. Fees for delinquent payments can be extremely costly. The best policy is to pay your bill on time. But if you are the forgetful type, you will want to compare these fees closely.
Other fees. Check into "over-the-limit" fees that occur if you spend beyond your designated credit limit. Look at "balance transfer fees" if you are considering moving an existing balance to the new card. This fee is typically a percentage of the amount transferred and could be significant.
Don't Forget About Extras
Even after looking for a low interest rate, a great rewards package and low fees, you are still likely to have several cards to choose from. Fortunately, there are even more factors you can consider before deciding on a credit card.
Customer service. Choose a company that responds to your needs, whether online or by phone.
Accessibility. Find out how easily you can access your account and bank online. How does one card company's apps and access compare to its competitors?
Added protection. Determine whether the company offers additional features, such as debt protection or extended warranties on certain purchases.
If it is still a toss-up among several cards, the benefits of choosing a company you know and trust may be the ultimate tiebreaker. In the end, make all your credit-card decisions in a way that enhances -- not jeopardizes -- your financial security.
This article originally appeared at communities.usaa.com.
