If you hang on to all the credit card offers that you receive in the mail, you probably have enough by now to build a small fort in the living room. Let’s assume that instead of building forts, you would rather compare them to find the best deal.
How do you wade through all the hype about great rewards and low interest rates? We offer a few suggestions.
- Know Your Habits – How do you use your credit card? Is it for emergencies only, or for regular purchases? What is the dollar value of your charges on an average month? Do you usually carry a balance? Do you use your card for travel or business purposes? Do you tend to overspend? Outline your habits and this will help you define the must-haves when evaluating card offers.
- Consider the Type of Card – Credit cards tend to fall into four categories: balance transfer cards for those who are dealing with existing credit card debt, rewards cards for those who pay off balances regularly and are seeking specific rewards, introductory card offers that allow people to catch up on increasing balances, and secured cards that are in essence prepaid cards backed by cash deposits. Weed out the cards that don't fit your need and focus on the rest.
- Compare APRs Carefully – Annual percentage rate (APR) is the best method of rate comparison, but credit card companies have some leeway as to what can be included in the APR. APR rates do not apply the same to all types of purchases, and are subject to change. Dig into the specifics to make sure that you are comparing apples to apples.
- Investigate Rewards – Check for restrictions or limitations on any rewards programs. For example, are only certain types of purchases credited toward the rewards, are there high thresholds to obtain rewards, or are rewards difficult to redeem? Also, consider whether the rewards programs are worth the interest rate that you pay or any fees you may be incurring as part of your normal card usage.
- Don't Forget Fees – Low interest rates may be offset with higher fees. Aside from annual fees, there may be charges associated with late payments, cash advances, foreign transactions, over-limit fees, and rejected payment penalties. More subtle potential fees include customer service charges, costs for receiving paper statements, or fees to increase your credit limit. Check all fees associated with any card to see which ones may apply to you.
- Beware Introductory Offers – Introductory offers are great, but they must be balanced against the changes after the introductory period expires. If you are planning to cancel the card earlier to avoid the changes, make sure that you are permitted to do so and investigate any associated penalties. Also, make sure that the offer matches your needs. (If you pay off the balance each month, an introductory 0% interest rate does not help you at all.)
- Assess Grace Periods and Late Fees – Check into the fees that are charged for late payments and the associated grace periods, if any. A good deal on a grace period could have the tradeoff of a higher late fee.
- Compare Credit Limits – To help your credit rating, it is better to have a card with a credit limit far greater than your average balance (anywhere from 10-30% is a good target). Having a balance at any given time that is greater than 50% of your credit limit can significantly affect your credit rating, and maxing out a card gives creditors serious concerns about your long-term ability to pay.
- Other Perks – Does the card offer free perks that other companies charge for, like limited late payment forgiveness or free cash advances? Is the card only good with certain merchants? Again, assess how much you would benefit from any of these perks based on your typical usage.
Before applying for a new card, check the details online and do a thorough assessment of how it fits your needs. Then you can finally relegate the rest of the solicitations to recycling — but remember to shred them first, or build a living room fort, if you prefer.
Armed with knowledge, check out our list of credit card offers.