A credit card can be compared to a chain saw, something that is very handy, but can cause a lot of damage if not used properly. So, you must select the right tool and follow due safety while using a credit card. Below are 6 things that you must take into account prior to selection of a credit card.
1. Spending habits
How do you intend to utilize the card? Would you pay off each month, or are you a person who carries a balance every month? In case you are completely going to pay the bill every month, then you should not be worried regarding the rate of interest. You may try a card which comes with a longer grace period and no annual fee. If you are the person who carries a balance, go for a low introductory rate and the lowest possible rate of interest. For those who would use the card for almost everything, it is better to obtain a card that has a generous credit limit. However, if the card is only for emergencies, opt for one with low fees and low interest rate.
2. Interest rate
The interest rate on a credit card appears in the form of the annual percentage rate (APR). It may be fixed or a variable one linked to a different financial indicator, usually the prime rate. While a fixed-rate card lets you know the monthly interest rate, a card having a variable rate would be fluctuating. Moreover, fluctuation may also take place in a fixed-rate card depending upon specific triggers, such as exceeding the limit or paying late.
3. Credit limit
This refers to the amount of money which you are allowed to borrow from the credit card issuer. Based on the credit history, it might range from a few hundred dollars to as high as tens of thousands of dollars. You should not land yourself in a situation wherein you are almost exceeding the credit limit, because it will negatively affect your credit score.
4. Fees and penalties
A credit card issuer will find numerous ways to extract money from you. There are common charges such as fees for transactions like cash advances and balance transfers. Charges may also be imposed if you intend to enhance the credit limit or go for phone payment. Moreover, if you exceed the credit limit or pay late, there are penalty charges. Your goal should be to look for cards that come with reasonable fees.
5. Balance computation method
In case you have to carry a balance, the mode of calculation of finance charges should be taken into account. Average daily balance is the commonest procedure, which implies that the daily balances are cumulated and then divided by the total days as per the billing cycle. In case a credit card computes balance making use of two billing cycle, you should avoid it, because the financing fees might be more.
6. Incentives
A number of card issuers present reward programs to the customers, for persuading them to utilize the card. In case you prefer such programs, it is advisable to look for those which are flexible and offers rewards that you can actually utilize.
