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Five Factors to Consider When Selecting a Personal Credit Card |
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Nowadays many credit card companies offer perks to lure new customers
ranging from introductory offers with zero percent interest for
transferred balances, Reward Programs offering airline mileage and cash
back, and discount programs with select merchants. While these
offers may be very enticing, there are five key factors, none of which
include perks, that you should consider when choosing a credit card.
FEES
One of the first factors to consider when selecting a credit card is
the number of fees associated with using the card and the totality of
all of them if incurred. Companies can charge a variety of fees
with the most common being annual, closure, over-the-limit and late
fees. Because, not all companies charge the same fees and the
level of the fees can also differ, it is important to read all of the
fine print and details that accompany any credit card offer.
Annual Fee
An annual fee is a membership or participation fee that is charged for
having a card. An annual fee can range from $25 to $50.
Closure Fee
Some companies also charge a closure fee when an account is closed. This fee also falls within the $25 to $50 range.
Over-the-Limit Fee
An over the limit fee is assessed when the sum of your purchases and
fees exceed the amount of credit you have available for new charges.
Generally speaking, this fee is around $25.
Late Fee
Late fees are charged when payments are past due. Some companies
assess late fees as early as one day after the payment due date.
Late payments can also trigger an increase in your annual percentage
rate.
ANNUAL PERCENTAGE RATE
The annual percentage rate (APR) is by far one of the most important,
if not the most important factor to consider when selecting a credit
card. The APR, which is stated as a yearly rate, is the interest
rate applied to outstanding balances. Low rates are preferable since
this means you will be paying less to use a credit card. One
single credit card can apply a different APR for balance transfers,
cash advances and purchases.
CREDIT LIMIT
You should also consider the level of credit that is being offered when
selecting a credit card. A credit limit is the amount of money that is
available for purchases, cash advances, balance transfers, fees and
finance charges. Credit limits can start as low as $200 for
department store credit cards and go into the thousands for major
credit cards (Visa and MasterCard) depending on your credit rating and
income.
SECURED VERSES UNSECURED CARDS
Another factor to consider when selecting a credit card is whether the
card is secured or unsecured. Users of secured credit cards pay a
deposit to obtain credit. These offers often appeal to two
classes of individuals, those who are very young and are having a
difficult time establishing credit and those who have blemishes on
their credit reports that prevent them from obtaining unsecured
credit. The credit limit for secured credit cards is usually
determined by the amount of your deposit.
Unsecured credit cards are by far the most widely held cards and tend to have higher credit limits.
GRACE PERIOD
The final factor to consider, the grace period, is the length of time
you have to pay your credit card balance in full without accruing
interest charges. The ideal card will have a grace period of 25
days or longer. If you carry a balance from month to month you
will pay interest regardless of how many days are in a grace period
with only new purchases being exempt for 25 days. The grace
period is usually not applicable to cash advances and balance
transfers.
PERKS AND REWARDS
While not one of the five key factors, I still felt it necessary to
write a blurb on perks. Many credit card companies offer perks as
an incentive to lure new customers and reward loyal ones. Perks
can include a Rewards Program that awards you with airline mileage and
cash back on your purchases. Some cards also offer discounts at
select merchants and credit card registration, which protects you if
your card is lost or stolen. Unless you are a frequent user of credit,
perks should be the last item you consider when selecting a credit card
because the biggest payoffs tend to go to the biggest spenders.
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Credit Card Articles > Choosing a Credit Card > Five Factors to Consider When Selecting a Personal Credit Card
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