Do you remember the first time you signed up for a credit card? Do you remember the rush of excitement as you look forward to getting the very first credit card you could call your own?
I bet that for many of us, we simply wanted a credit card. It didn’t matter much which card it is as long as we got approved.
Well, that has to change now. Every card may have its privileges and perks but also has associated risks. Those who have credit cards may already be familiar with those perks and risks, but for those new applicants, it would help to ask yourself a few questions before signing up for a new card.
Why did you pick that card?
Know the whys behind your decision. Does that credit card fit your needs? What are your priorities anyway? The following types of cards may fit your priorities and needs. Asking these types of questions lead you to answers that make credit cards a practical part of your life, and not an accessory which you flaunt in front of others. Having a platinum card with amazing perks that you don’t use may just be a waste of annual fees.
There is no one-size-fits-all kind of credit card. All you need to do is ask yourself what you need and find the card that closely fits you. Consider the following types of cards.
These cards give you a rebate or cash rewards credited back to your account every time you make a purchase from a credit card company’s partner stores or services, typically from, groceries, fuel stations and utility companies. If you are regular customer of those establishments, getting cashback card might be a good idea.
These types of cards, also called affinity cards, reward you with points each time you make a purchase from retail stores, boutiques, specialty stores, etc. The points can then be used to purchase other items from the same shops.
Fly miles cards
These cards let you earn air miles when you book airline tickets. The “air miles” are simply points which you can also use to purchase tickets.
What are the interest rates and penalty fees?
What is the introductory rate being offered? How much is the charge for late payments and how much is the annual fee? Will the credit card company reverse annual fees if you spend a certain amount in a year?
Knowing these actual numbers will give you an idea of the costs associated with maintaining a credit card, as well as carrying a balance. If you want a card so bad because your peers have it, yet the rates are crazy high, then better stay away from it.
Interests and penalties are your enemies when owning a credit card. If you will pay your monthly dues in full, then these numbers do not matter at all. If, however, you expect to carry a balance every month, then you should be looking into these numbers first and foremost, including the introductory rate.
How much is the actual interest rate after the promo period?
It’s a common marketing tactic for credit card companies to offer lower or even zero interest rates to introduce a new card or remarket an old one. While this makes a credit card look quite a steal, it also pays to understand how much you’ll be actually paying for APR when the promo period expires. Some cards would offer zero interest for the first year, then after that, when you’ve gotten used to the habit of buying with your credit card and pay zero interest, they start charging sky-high rates. Be careful and remind yourself that introductory APR is different than the regular APR.
What kind of fraud protection does it give?
In a world where fraudsters are also getting smarter, it helps to have a credit card with a built-in fraud protection such as EMV (Europay, Mastercard, and Visa) chip cards, which use authentication methods, unlike traditional magnetic cards where payment data can easily be copied using skimming devices.
Likewise, having an easily accessible 24/7 customer support service that you can tap in case of credit card theft is a must. They should be able to freeze your account so that no further fraudulent transactions are made using your credit card.
Reward programs and discounts
These are different than reward cards because these are seasonal programs offered by your card issuer. From time to time, they run promotions allowing you to accumulate points in exchange for goods and services from partner stores. Others often offer huge discounts on restaurants and hotels, just to make their clients use their cards. Ask around or look it up on the Internet to find out which cards offer programs the most.
Grace period and balance computation
Grace period is the amount of time you are allowed to carry your balance dues without penalty charges. Typically it’s between 20-30 days after the billing cycle and the due date, after which you will be charged with interest and penalties.
And speaking of interests and penalties, you should also look at how finance charges will be calculated. Typically, it’s calculated multiplying your average daily balance by the daily interest rate of your card (APR divided by 365 days).
Is this card better than the others?
Finally, you should not make a decision when you have just looked at one card without comparing it to others. A simple Google on “credit card comparison” will take you to websites that review credit cards’ features. These sites can help you easily eliminate ones that you should not be applying for.
Other cards to consider
If you are scared of credit cards, or if you are on credit card quarantine because you have just paid off your total balance, and you are trying to improve your credit score, then you might just want to try getting a secured card. You can get a secured card by depositing a certain amount, as required by your credit card company. About 80% of that deposit becomes your credit limit, and you will only be allowed to charge on your secured card once you are able to repay your balance.
Credit cards are becoming an indispensable part of living in the U.S. Like a double-edged sword, however, credit cards can either be a tool to help you or something that can inflict pain on you. That’s why before signing up for a credit application, it’s quite important to understand the jargon, and the ins and outs of the type of card you are applying. Don’t just sign up for anything. Read and understand what you’re getting into!