Consumer Credit Cards
Credit cards get a lot of bad press, but the truth is that when credit cards are used responsibly they are a valuable financial tool. Credit cards help to build a person’s credit score, cover emergency expenses and finance essential purchases. The trick is to choose the right credit card for your needs and use it responsibly.
Things to Consider Before Choosing a Card
Credit card companies consider numerous factors before approving a credit card application, and by understanding these factors a person can make the best choice for a card that will suit his needs. As a rule, all consumers should try to choose a card with a low annual rate, no hidden fees and a credit limit high enough to cover his needs. Some cards have additional features, however, and not all cards are available to all consumers. Before choosing a card, ask yourself the following questions:
Why do you want a credit card?
If you plan to keep the card solely for emergencies and don’t plan to use it, you should definitely avoid a card with an annual rate or an inactivity charge. If you’re taking out the card for business purposes, you’ll need a higher spending limit than if you’re just getting the card for household purchases.
How much credit do you need?
A high credit limit can be appealing, but these cards often come with a higher interest rate. It may also be more tempting to spend more money, even if you can’t pay it off right away. On the other hand, if the limit is too low, the card’s usefulness is greatly diminished.
How good is your credit?
People with high credit scores benefit from higher credit limits and lower interest. If you’re getting the card as a way to help repair damaged credit, you probably won’t qualify for the same card as someone who already has excellent credit.
Are you consolidating debts?
If the primary desire for getting a new credit card is to consolidate multiple other cards, you’ll want to find an offer that has a low interest rate for balance transfers and a high enough credit limit to cover all of your other debt.
How much can you afford?
Cards with a higher credit limit may also have a higher minimum payment, regardless of the interest rate. Be sure that you can afford to pay at least the minimum payment every month. Ideally, you’ll want to pay off your debts as quickly as possible, but if you can’t, you don’t want to risk underpaying the card.
By clarifying your motive for getting a card and searching for one that will suit your needs and fit your credit score, you can find the best match. There are hundreds of credit card companies, banks and even department stores that can provide you with a credit card, and by choosing a good match you can ensure that the card truly benefits you.
Types of Credit Cards
Some of the best-known sources of credit cards are banks, such as Bank of America or Wells Fargo. There are also private lenders that offer credit cards. Many retailers provide credit cards as well. Many credit card companies also offer several types of credit card, and each card has its own unique benefits and drawbacks.
Standard Credit Cards
The most basic type of card, these cards are very straightforward. The consumer has a line of credit which he can spend, and the interest rate is fixed. Many people choose to use these cards to transfer a balance from other cards.
Low Interest Rate Credit Cards
Sometimes a card’s low interest rate is an introductory offer; after a certain period, the interest rate increases. Some people even choose to take out low interest rate credit cards to use only temporarily, then cancel it after the interest rate increases for a better rewards card.
There are many types of reward cards, each with different types of rewards. In all cases, the cardholder accumulates points with each purchase. In some cases, these points accrue when the purchase is made; in other cases, the points are awarded after the purchase has been paid off. Some common rewards include cash back, airline discounts and gift cards.
Retailer Reward Cards
These differ from other rewards cards in that they are provided by a specific retailer, like Best Buy or Amazon. The card can be used for regular purchases, but the rewards are always for the specific retailer that distributed the card. The card company may also offer double or triple points for purchases made at the retailer.
Secured Credit Cards
Most credit cards are unsecured debts, meaning that there is no collateral. People who need to improve their credit score, however, may be interested in obtaining a secured card. A secured credit card requires the consumer to use collateral equal to the credit limit on the card.
There are other types of cards offered for certain specific purposes, such as a business cards and those offered to students. All cards will have unique benefits and drawbacks, so it’s important to read the fine print and make sure you understand details about a card’s fees, payment schedule, interest rates and other information. By taking the time to compare multiple cards and find the one that’s right for you, you can choose a card that will suit your needs and finances.