Sure, you receive charge card account offers in the mail, but which charge card account should you choose? Simply applying for the first one you open or the one that’s most aesthetically appealing isn’t the best way to choose. You can save hundreds, and maybe even thousands, of dollars by shopping around for a credit card.
Before you choose a charge card account, get the answers to a few key questions. The answers to most of these questions can be found in the disclosure included with the charge card account application.
What kind of card is it?
There are many different types of credit card accounts to choose from. Understand what kind of card you’re applying for before filling out the application. This will help you make sure you’re applying for the right card.
How are you going to use the charge card?
Do you plan to pay your balance in full each month? If so, a charge card might be the best option. Will you be using your card for balance transfers? You should look for a card with a low annual percentage rate on balance transfers. Do you plan to carry a balance from one month to the next? A credit card account with a low annual percentage rate is ideal.
What’s the annual percentage rate?
The annual percentage rate, or APR, is the percentage applied to balances that you carry beyond the grace period. The higher the APR, the higher your finance charge will be when you have a revolving balance. Most credit cards have a different APR for purchases, balance transfers, and cash advances. Make sure you know the APR for each.
How long is the grace period?
The grace period is the amount of time you have to pay your balance in full before a finance charge is added. The period is usually expressed in days from the billing date, i.e. “28 days from the billing date.” Longer grace periods are better because they give you more time to pay your bill without incurring a cost for the convenience of using credit. If you already have a balance on the charge card account, new purchases may not have a grace period.
What are the fees?
You should know the amount of any fees and the circumstances under which the fees are applied. The most common types of fees include: annual fee, Late fee, and over-the-limit fee. You may also be assessed fees for paying your account over the phone, requesting additional copies of your statement, or for having your check returned.
How is the finance charge calculated?
The charge card account company’s method of calculating the finance charge has an impact on the amount of the charge. Some methods consider only the current month’s balance while others consider the current and previous months’ balances. New purchases may or may not be included in the calculation. Common methods of calculating your finance charge include the average daily balance and double billing cycle method. Of these two, the average daily balance method is the least expensive.
What is the credit line?
The credit line influences your purchasing power. If you’re new to credit, it’s wise to start out with a low credit line to become familiar with responsible charge card account habits. Some financial situations allow a higher credit line. Be wary of no-limit credit cards because they can sometimes look maxed out on your credit report. This can have a negative effect on your credit score.
What are the rewards?
Some charge card accounts offer rewards for using your credit card. Make sure you fully understand the reward structure and the amount of purchases you have to make to receive the reward.
Finally, when searching for the best credit card, I always advise starting with Discover credit cards or Chase cards.