There is a wide range of credit cards available today, and trying to choose the right one can be daunting. The best way to go about it is to look at the features and benefits offered by each card, compared to the costs of having that card; and being sure to take the applicant's credit score and circumstances into account. Below are some of the features, benefits and drawbacks to consider when applying for a credit card. Credit cards are an incredibly useful tool as long as the user stays in control of their finances, and does not incur one debt to clear another. Be sure to read through and understand any financial agreement before signing it and make sure to pay bills promptly. A good financial record will stand you in good stead in all aspects of life.
Who to apply to?
Who to apply to? There are a wide variety of credit cards to choose from in the US today; from the grandfather of all credit cards, the Diner Club card, to others such as American Express, Capital One, Chase, MasterCard, Visa, MBNA, Discover and many others. Almost all credit card companies offer a range of cards, from the high roller cards with an expected minimum spend of $5000 per month, to the so-called 'bad credit' cards, aimed at helping people who have a poor credit score regain financial trustworthiness.
Types of Credit Cards
What card to get? Business credit cards are separate to personal cards, although both types of credit card have benefits and drawbacks. Some of the personal rewards include a small percentage of cash-back, usually paid annually and based on purchases made throughout the year; frequent flyer points, if the card-holder travels often; and various insurances and warranties, from travel to cell-phone cover, even roadside assistance and car rental insurance. Many credit card companies offer a student credit card and a lot of these offer good rewards for clearing the balance in full every month, an excellent way to encourage good financial habits in young people. Other rewards are geared appropriately to the age group, not many students would be interested in a discount on home insurance, whereas free tickets to up-and-coming gigs are seized upon with enthusiasm!.
Who is eligible for Credit Cards?
Who can apply? Legally, credit cards can be issued to anyone over the age of 18. Obviously, credit card issuers will run credit checks on applicants and use their own internal criteria to weed out unsuitable candidates. Despite the legal age being 18, many credit card companies are asking under-21-year-olds to have a co-signer on their account, usually a parent with an established credit history. Formerly a credit score of 720 was considered excellent, now the excellent tag applies to scores of 750 and above. This is due to the global recession, and the very high incidence of defaulting that follows a run of redundancies and lay-offs. The 2009 Credit Card Act prevented lenders imposing excessive tariffs on customers, which has had the effect of making it harder for marginal applicants to be approved for a card. This is especially hard on people who have not created a credit record by always paying cash, or who have recently moved into the USA from elsewhere - they may be perfectly trustworthy, but cannot get to prove it as they cannot get a card application approved!
Finding the Best Credit Card
When choosing a credit card, there are a number of factors that need to be taken into account to ensure that you are getting the best deal:
- APR: APR of annual percentage rate is the first aspect that many consumers look at when choosing a credit card and quite rightly too as this figure determines how much interest they pay back on their purchases. When comparing APRs be sure to investigate whether or not this figure is variable. If the interest figure is variable, enquire how the variable figure is created and when it can change. This will avoid any nasty surprises in the months to come.
- Finance Charge: some credit card companies require their users to pay in full of their charges at the close of the month. However, most credit cards use a system that is referred to as revolving credit. This allows users to make a minimum payment at the end of the months and carry a balance which then an interest charge is applied to. There are three ways by which financial charges are determined: adjusted balance, adjusted daily balance and previous balance. In general the previous balance method tends to work out most beneficial for the card issuer as it applies interest to entire balance even though you are actively reducing it by making payments. Conversely, adjusted balance works in the cardholder’s favor as this method subtracts your payment from the balance and then applies interest to the remainder.
- Grace Period: this is the amount of time that you have to pay your bill before the credit card company starts charging finance charges.
- Fee: some credit card companies charge a fee for their services. When comparing cards it is always a wise idea to compare this rate and whether or not their services are worth it as you may find that their services are similar to a credit card that has no annual fee.
- Benefits: as there is much competition in the credit card market, many credit card companies offer rewards programs or benefits to their card users. Such as a points reward system where individual are awarded points for using their card and the points can be later swapped for gift certificates or air miles.
What else to know? Credit cards interest charges run anywhere from an average 10.99% (although it is possible to find one for around 7% in rare instances!) all the way up to 20.99%. The 'bad credit' cards tend to have even higher rates, 22.9% to 30%. The higher the rate of interest repaid is usually a reflection of the credit card companies' assessments of trustworthiness; those most likely to default eventually have a higher rate to cover the correspondingly higher default rate. It is usually possible to avoid all the interest on a credit card by clearing the balance in full every month. As well as the credit score, companies take into account the applicants ability to pay, willingness to pay and employment history. Each company has a slightly different set of criteria - which they are coy about revealing too freely, for fear that the competition will undercut them and take away their business - that they use to assess the suitability of each applicant. If an application is rejected, it is possible to appeal, and have the decision overturned, especially in exceptional circumstances. A final tip is to always be aware of when payments are due on a credit card and how much needs to be paid. Failure to comply with the terms and conditions of a credit card account can result in expensive penalty charges being applied to the account, which can signal the beginning of a spiraling descent into debt.
Popular Credit Cards
|Bank||APR||0% APR Period||Annual Fee|
|10.99% - 29.99%||14 months||$0|
|17.24% - 22.24%||15 months||$0|