7 Most Important Things To Consider When Picking A Credit Card

7 Most Important Things To Consider When Picking A Credit Card

July 5, 2020         Written By Heaven Speirs

There is a huge assortment of credit cards on the market today. How can you be sure you are picking the right one? A good credit card for you may not be a good credit card for someone else. Thus it is important to examine your options and select the ideal card for your needs. Let’s take a look at the top 7 most important things to consider when picking a credit card.

1 – Interest Rate (APR)

The interest rate for credit cards is described as the APR, or annual percentage rate. That represents how much interest you will pay over the course of a year. A card with a 12% APR has a monthly interest rate of 1%.

The APR on your card determines how much extra money you will pay for your debt each month. Low interest means that you can carry debt for a while without accumulating a high amount of interest. A high APR can turn your revolving balance into a money pit, fast. Of course, you can bypass the interest entirely by paying off your balance in full each month. If you need a credit card to cover a large purchase though, the APR is a primary factor to consider.

APRs can either be fixed or variable. Variable rates have the ability to change, which can increase your debt load, sometimes significantly. With a fixed rate card, you know what your interest rate will be from month to month. Consumers with higher credit scores and better credit histories tend to get approved for lower interest rates. Those with lower credit scores are considered a ‘higher risk.’ Thus they carry higher APRs. Luckily, you can ask for a lower interest rate after several months of good payment history. Many credit card companies will automatically increase credit limits or lower interest rates after 6-12 months.

2 – Credit Card Rewards and Benefits

Credit card rewards are the driving factor behind most card decisions. Fees and interest rates are important, but consumers want to know about the perks. When reviewing a card’s rewards program, consider how you plan to use the card and what types of rewards you will use most. Options include:

Rewards are a great perk, but only if you pay off your card in full on time each month. Otherwise, the card’s interest penalties will more than eat up any rewards you receive. The trick to maximizing credit card rewards is to use your credit card as if it was the debit card for your bank account. Pay for transactions you already have the money for, and then pay off the balance each month. You won’t have to worry about interest, and you will get rewarded for money you already planned to spend. If you will not benefit from travel rewards or loyalty programs, a cash back card may be the best choice for you.

3 – Annual Fee

Not every credit card has a high annual fee. In fact, many cards require no annual fee at all. Another large portion of cards offer no annual fee for the first year, followed by a fixed annual fee for the years that follow.

When evaluating the annual fee on the card, compare the cost to the expected rewards from the card. Travel cards are notorious for having high annual fees, but they also offer an array of lucrative rewards to offset that. If you travel frequently, the free hotel nights, upgraded plane tickets, and exclusive lounge access may be worth the $100+ you pay each year for a travel rewards card. If not, find a card with a lower annual fee better suited to your spending habits.

See Are Travel Rewards Worth the Annual Fee? for more info.

4 – Credit Card Fees

Credit card companies are running a business. They have to make their money somehow. A portion of the profits comes from interest, but another portion comes from credit card fees. There are many types of credit card fees, including:

  • Late payment fees
  • Annual fees
  • Monthly fees (common for reloadable prepaid cards)
  • Over-the-limit fees
  • Balance transfer fees (charged when transferring the balance of one card to another card)
  • Cash advance fees
  • ATM fees
  • Foreign transaction fees (for transactions outside of the U.S.)
  • …and more

Review the card’s terms closely before applying for a credit card. Understand what fees you may encounter, and what the circumstances are for those fees. A high balance transfer fee may not matter if you do not need to transfer the balance from another card. However, a high foreign transaction fee would matter if you frequently travel overseas. Analyze the costs closely so you know exactly what you are signing up for.

5 – Credit Limit

Credit limits affect the amount of money that you are able to borrow from your credit card company. Two people can have the same credit card, but one can have a much higher credit limit than the other. The credit limit you are approved for will depend on your credit score and your credit history. With that in mind, some cards are designed to have low credit limits, while others are made for large purchases. Apply for a card that fits your spending needs.

If you can not get approved for the credit limit you need, do not fret. You can increase your credit limit over time. Use the card frequently and pay off the balance each month. Establish a strong history of repayment, and request a limit increase after six months. Nearly 80% of cardholders get a higher credit limit just by asking.

6 – Sign-on Bonus

The sign-on bonus should not be a top priority when choosing a credit card, but it might make one card slightly better than a comparable card. Many credit card companies offer rewards after spending a certain amount of money in the first 90 days. For instance, you might get $150 in bonus cash back after spending $3,000 on your card within three months. If you think you can fulfill the terms of the bonus, this could be a great way to get even more out of your credit card.

Do not push your finances just to get the sign-on bonus. Going into unmanageable debt will only hurt you in the long run. The interest you pay on the balance will eat away at whatever rewards you earned. Evaluate the other factors for the card first, then assess the sign-on bonus for extra incentive. If you do not spend enough to earn it, you will still have a card you love.

7 – Secured Cards (Great for Building Credit!)

Did you know you can get a credit card without borrowing any money? This is a great option for people trying to repair their credit scores or build new credit. Secured credit cards are designed to improve a person’s credit score without any debt risk. Instead of a credit card company providing the line of credit, you do. Here is how that works:

  • You load an amount of money into your secured card account, similar to loading money onto a prepaid card. This becomes your credit limit.
  • You use the secured card just like you would use a credit card.
  • When the billing cycle ends, you will receive a bill for the amount you spent on the card. You can make the minimum payment, pay off a portion of the balance, or pay the balance in full.
  • The secured card issuer reports your payment to the credit bureaus, thereby boosting your score.
  • If you decide to cancel the card, the funds left on the card will be refunded to you.

The credit card provider is not at risk because you are the one providing the funds for the card. Because of this, almost anyone can qualify for a secured credit card. Evaluate the card’s factors just like you would for traditional credit cards – annual fee, APR, etc. If you manage the card correctly, you should be able to qualify for a traditional credit card over time.

Is It the Right Time for You to Get a Credit Card?

Now that you know what to look for in a credit card, decide if a credit card is right for you. Will you be able to manage your finances, or will a card be a debt temptation for you? Is the big purchase you have coming up going to work well on a card, or would it be better suited for a personal loan? What do you need out of a credit card? What will those needs cost you in the end? Evaluate all of these circumstances before applying for a card you like.

At LowCards.com, we make it easy to find the perfect credit card for you. Look for cards based on their features, interest rates, credit score expectations, and much more. Use our Credit Card Finder Tool to locate the best card for your specific needs.

The information contained within this article was accurate as of July 5, 2020. For up-to-date information on any of the terms, cards or offers mentioned above, visit the issuer's website. Many of the offers on this article are from our affiliate partners, and LowCards.com may be compensated if you take action with any of our affiliate partners.

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heaven

About Heaven Speirs

Heaven Speirs is a contributing writer for LowCards.com. She remains up-to-date with the latest developments in the credit card industry and the financial sector as a whole. Heaven has over 10 years of experience in online journalism, the bulk of which has been focused on personal finance. Heaven attended Oklahoma State University, where she discovered her talent for research and content creation. In her spare time, Heaven enjoys painting, playing poker, and spending time with her husband and three dogs.