5 Things to Consider When Choosing a Credit Card

So you’ve decided that you’d like a credit card, or you’d like to fatten your wallet a bit and add another one. If you’re like to average American you’ll have a whopping seven credit cards! If you’re just starting out be leery of getting into credit card debt. I’m probably preaching to the choir, but I can’t stress this enough. When looking at credit cards there are several things to consider, but they rely heavily on you and what you plan to use the credit card for.

If you’re smart with choosing your credit card it can actually be a way to offer convenience, efficiency, and provide a way for you to make some extra money. I actually make 1% cash back on all my purchases since I pay my bills on time, but the costs of missing a payment can hurt when you’re socked with interest charges, late fees, and a ding on your credit score. Since each person is different consider some of the following scenarios that might determine what options are best when choosing your card.

* If you pay the full balance each month you may want a card with cash back rewards and that doesn’t require any annual fees.
* If you are someone who leaves a balance on your credit card each month your main criteria might be having a lower interest rate to lessen the interest rate costs of holding the balance.
* If you pay your balance in full every month, find a credit card with no annual fees and a solid cash rewards program.
* Depending on what you typically purchase with the card different rewards might be better for you. If the card is used primarily to pay for your gas, then maybe you’d be interested in a card that provides gas rewards for every purchase. Same with cards that offer flyer miles if you’re in the air a lot.

With hundreds, if not thousands of different credit cards to choose from it’s not exactly something that’s blatantly obvious. You can compare rates, perks, and even the pretty pictures that are on the card, but what options matter most? Below are 5 things to consider when choosing a credit card.

1. Your Annual Percentage Rate (also known as APR) – This will determine how much interest you are charged on the balance of you card. Look for a card with a percentage rate of below 12% if you’re holding a balance on the card.
2. Balance Transfers – If you already have a card with a balance without intentions to pay off the card anytime soon you may consider a balance transfer. Some cards will give you a 0% APR for the first year if you transfer their balance to them. However, they’ll most likely consider charge you a small fee to do this so determine if you can save more by paying the fee than holding the balance with your previous credit card company.
3. Annual Fees – Ideally you’re going to be looking for a credit card that doesn’t have any annual fees.
4. Penalty Terms – What are the late fees and grace periods on the card. The penalty rate, also known as the default rate, is something to consider in the fine print as well.
5. Billing Cycle – is it single or two cycle billing? Ask the credit card provider this if it doesn’t say it in the literature you’re looking at. Two cycle billing is worse as you can read about here.

Choosing your credit card shouldn’t just be based on the picture of the dolphins or because of the signup bonus. Read the fine print and understand the fees and costs associated with the card. Finding the right credit card is like finding a great relationship because it’s going to be something you stick with for years and will affect a lot of your purchasing decisions.