What to look for when browsing the new card lot
By Erica Sandberg
September 8, 2015
Can you help me understand a bit more about selecting a credit card? I’ve had only one in my life, so I’m not exactly sure what to look for. I’m also fairly broke, so I’m not sure what I qualify for. — Ginger
If I were looking to buy a car, I’d be pretty baffled. That’s because I’m woefully ignorant about the product and process. Shopping for a credit card account when you’re unfamiliar with the features is no different. Thankfully, all you have to do is learn what features are available and then determine which card best works for your lifestyle.
1. APR. If you always pay your bills in full, the interest rate you’ll be charged on debt won’t matter. However, if you pay over time, whether due to emergencies or because you buy what you can’t pay for right away, then interest rates matter a lot. You’ll want the rate to be as low as possible so that the interest charges also are low. At this writing, the national average APR is 15 percent.
2. Fees. Some credit cards come with annual fees, some don’t. On the surface, it may make sense to consider only cards without an annual fee. But don’t be so quick: Consider what you receive for the money. If all you need are the basics, choose a card with no annual fee. But if you’ll come out ahead with an incentive package (see Nos. 5 and 6 on this list) it can be financially smart to pick a card with an annual fee and a lot of perks that suit you.
Other common credit card fees to check out include:
- Late payment fees.
- Cash advance fees.
- Balance transfer fees.
- Over-limit penalties.
These fees can be avoided with proper credit use, but it’s still good to know what they are.
3. Credit limit. When you apply for a card, the lender will pull your credit report (or usually just your credit scores, which are based on credit reporting data) and consider what you’ve reported as your household income. With that information, the lender decides whether to issue you a card, and if it does, sets the maximum amount it will allow you to borrow – your credit limit. The better your credit rating and more money you make, the higher the limit will be.
While you can’t control what a card issuer initially offers, your use of credit can affect what the issuer offers you in the future. With regular charging, on-time payments, little or no debt carried over, and a better paying job, you’ll qualify for ever higher credit lines.
4. Customer service. When I call my credit card company, I don’t want to have to go through a series of numerical options before reaching a real person. That person also should give correct guidance, in a polite way. If you’re like me, check out the customer satisfaction rankings published by J.D. Power and review which companies rise to the top.
5. Rewards. Some credit products allow customers to rack up points with each charge, which customers then can trade in for discounted airfare, gift cards, gas, products and services. The most popular reward is cash, though.
Think about what you would use most often and choose accordingly. Rewards cards are good because if you charge frequently and pay the total bill monthly, you will come out ahead financially.
6. Extras. Now look for unique features. For example, travel cards might not charge foreign transaction fees and might offer amped-up flight insurance, free bag check, and even admission into costly VIP airport lounges. A business card can help with accounting by providing quarterly summaries so that you can prepare your taxes more efficiently.
7. Website. All credit issuers have a website, but some sites are easier to navigate than others. While a great online presence will not likely be the deciding factor, it’s something to check out before you choose a card. Chances are you’ll be logging on to keep abreast of your charging history, make payments and contact company representatives. So spend some time browsing through a few card issuers’ websites. As you’ll see, some also offer personal finance news and educational articles.
Which cards you can qualify for depends on your income and credit history. If the account you had is still appearing on your credit report and you treated the credit responsibly, it’s working in your favor. Same with personal, student, auto and home loans. Check your FICO score at myFICO.com to see where you stand and then seek cards you like in your scoring range. Another option is the CardMatch program, which will connect you with accounts that are a match for your needs and rating.
Now you should be able to drive away with the card of your dreams, Ginger!
Got a question for Erica? Send her an email.