8 Factors to Consider When Selecting a Credit Card

Now that we’re almost one full month into 2012, financial indicators suggest that the economy is on the upswing. Treasury Secretary Timothy Geithner recently shared that he anticipates the U.S. economy will grow about 2-3% this year. And earlier this month we learned that consumer spending is up, while consumer debt is down; all positive signs. Credit card companies have also noticed the shift in consumer confidence, and are now trying to entice valuable customers to say ‘yes’ to their cards. Although the average APR is still high (at 14.95%), the best Credit Cards are currently offering major incentives to get consumers to apply for, and charge up, their products. With more competition for consumer’s money (and loyalty), it can be confusing to know whether a Credit Card Offer is a good deal, or rather too good to be true.

First, it’s important to note that the Best Credit Card offers are only extended to the best borrowers, with FICO® Credit Scores above 780. While it’s possible to be approved for many great credit cards with a Credit Score below this mark, many consumers who do so won’t be offered the prime rates advertised.

Now, when selecting the best credit card, here are 8 factors most credit card holders should consider:

1. How are you going to use this credit card?

Do you plan to carry a balance, or pay in full? Do you want to transfer a high-interest balance from one card to another? The answers to these questions should help steer you towards the best card for you. If you plan to pay the balance in full each month, consider a Rewards Credit Card. If you plan to carry a balance from month-to-month, opt for a card with the lowest ongoing interest rate (credit unions offer some of the best rates). And if you plan to Transfer A Balance, Choose A Card that offers a low balance transfer interest rate (3% or below), with at least a 12 month 0% APR, so you have time to pay down that balance before interest accrues.

2. Type of credit card: secured or unsecured?

Secured Credit Cards require a deposit to establish the credit limit. These cards are great for people who have poor credit, want to rebuild credit, and for anyone who needs to learn good credit habits. Unsecured Credit Cards encompass most traditional credit offers. Typically, those seeking new credit will apply for an Unsecured Card.

3. Kind of credit card: credit or charge card?

VISA, MasterCard, and Discover offer credit cards. American Express offers both credit and charge cards. The difference is simple: credit cards offer a revolving line of credit, while charge cards must be paid in full each month. The card you choose should depend on whether you will carry a balance or not, as well as the amount of charges you intend to make each month.

4. Annual fee: choose a card with no/low fee.

In simple terms, whenever possible you should choose the credit card with the lowest annual fee, and if possible, select a card with no annual fee. But this can be more difficult than it seems. For example, if you decided to choose a charge card, you’ll have to pay an annual fee (this is the price you pay for not being charged interest). Also, many credit cards offer no annual fee for the first year, but then the fees skyrocket. Make sure you understand the terms and conditions, and are aware what the annual fees are, beyond the first year introductory offer. And remember that if you intend to Apply For A Rewards Credit Card, any annual fee you pay will eat into your rewards, often so much so that the card is no longer beneficial.

5. APR: look for cards with the Lowest APR

The average APR, or annual percentage rate, fluctuates regularly. At the beginning of 2012, this rate is a relatively high 14.95%, and it’s not uncommon for individuals to have interest rates as high as 29%. The larger the balance you intend to carry, the more you should focus on selecting a card with a 0% introductory rate (for 12 months or longer), and a low ongoing rate. Most credit cards have a different APR for purchases, balance transfers, and Cash Advances; it’s important to know the APR for each.

6. Grace period: the longer, the better.

A credit card grace period is the amount of time you have to pay your balance in full before finance charges and interest accrues. The Credit CARD Act of 2009 requires that the duration of all credit card grace periods be at least 21 days, but not all credit cards have grace periods. Typically, the grace period usually applies only to new purchases—most credit cards do not offer a grace period for cash advances and balance transfers; instead, interest charges apply right away.

7. Rewards: no caps, no expiration dates.

Some people suggest that if you want a rewards credit card, you should always opt for a cash back card, because cash is more valuable than any amount of points. This might work for the average person, but if you travel often, or want special advantages like being able to buy concert tickets before they go on sale (a perk for American Express Card holders), then choose one of these options instead.

Perks and rewards don’t need to be tangible to be valuable, but they do need to be redeemable. Remember that many Rewards Credit Cards come with caps, limiting the amount of rewards you can accrue. Additionally, some cards have rewards that expire after a specified time period, making them ineligible for redemption. Choosing a card without rewards caps or expiring rewards will prove invaluable.

(Note: The rule of thumb with any Rewards Card is that you cannot carry a balance. In addition, fees will decrease any reward so selecting a card with the lowest fees is crucial.)

8. Security features: choose a card that offers secure online account numbers.

Are you concerned about credit card fraud? If not, you should be. Consumer Reports noticed that more than 1 in 3 consumers have been victims of credit card fraud in the last 5 years. Make sure to select a credit card that offers special security protections. Several credit card issuers (for example, Discover) offer secure online account numbers, which when you have the appropriate settings selected, automatically generate a new account number, expiration date, and security code for your credit card on a merchant’s website. Currently, these security features are only available for online shopping.

by CreditQ Staff

Published 1/30/12 17:19

Disclaimer: This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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