Credit Card Selection

The debate on the good, bad, and ugly about credit cards is one not likely to end anytime soon. The reality is that most people have them, few people understand them, and many people create untold credit and financial problems as a result of misuse. What I want to address are some of the common criteria that should be evaluated when considering what card I should get [the whether I should or shouldn’t get one is a post for another day] … the type of card should largely be a byproduct of how you will use the card (pay in full each month, carry balance, etc.). There are plenty of options – 30,000+ to choose from.

ANNUAL FEE. Fee charged for membership privileges – typically $50 to $100 per year. By shopping around, this is a fee I can/should avoid – 75% of cards do not charge an annual fee.

INTEREST RATE. This is obviously a high priority if my tendency is to carry a balance. Rates can vary dramatically – common rates on the low end are around 8.9% (you can get lower – I have a card I got a while ago with a fixed rate of 4.9%); on the high end, I’ve seen fixed rates approaching 30%. For students, a ‘normal’ range for a “good rate” will be 12% - 16% (unless of course you already have established credit). Pay attention to the fine print: introductory vs. long-term rate, variable vs. fixed rate, and default rate (if I am late on a payment) are all important elements.

BENEFITS. More and more credit cards are offering ‘perks’ to members for card use … the benefits vary dramatically: cash back, flight miles, insurance (rental car, flight, etc.), shopping discounts, gas rebates, and donation of % of charges to your charity are some of the more common examples. Read the fine print – Do I have to spend a certain amount to receive the benefit? Are there limitations on how much I can receive? Do the rewards expire? Are there other caveats/ stipulations? Ultimately, ask yourself ‘does the benefit exceed the cost?’ It doesn’t make sense to pay 21% to a credit card company in exchange for 1% cash back …

FEES. Annual fees can be avoided – if I’m late, or over-the-limit, my card is going to charge me. The question is how much? The answer is $35 [or more] per ‘offense’ in most cases. Balance transfer, convenience check, and cash advance are all other transaction fees to inquire about.

OTHER ISSUES. The items mentioned above are some ‘general’ questions to ask about – you may have other ‘specific’ questions you want to have addressed: customer service, level of credit limit, penalties (universal default?), how widely is the card accepted (Discover, AmEx), etc.Many websites are available to help you examine these criteria more closely as well as search amongst the wide array of card options to find one that will be most suitable for your needs.

CARD SEARCH/COMPARISON TOOLS:
- Bankrate
- CardRatings
- CardTrak
- Credit Card Clients
- Credit Cards Compare
- Credit Cards.com
- Index Credit Cards
- LowCard$

INFORMATION/RESOURCES:
- Bankrate
- Choosing a Credit Card – FRB
- Credit Card Blog
- Getting Credit – FTC
- Wikipedia – Credit Cards