Sometimes, credit cards get a bad rap. While it’s never a good idea to spend above your means, the truth is that when used wisely, credit cards offer a number of important financial benefits: from building your credit history, to providing more fraud protection than a debit card can offer, to helping you earn cash back, miles, or other rewards every time you spend.
Wondering how to choose the right credit card if it’s your first time applying for one? Here are a few key points to consider.
Rewards Structure
Today, there are hundreds of card-linked rewards programs that let you earn points, miles, cash back, and more, every time you spend. Every rewards structure is different, so be sure to evaluate how easy it is to earn rewards as well as how much flexibility you have to redeem them; including if there are any expiry dates or time limits.
If you do choose a credit card based on its rewards structure, keep in mind that a reward is only really a reward if you don’t have a balance – otherwise, it’s just a discounted interest rate. Aim to pay off your credit card balance every month, in full, to avoid interest payments and take full advantage of your rewards.
Rates
The interest rate of your credit card, typically stated as an annual percentage rate (APR), determines how much extra you’ll owe if you don’t pay your balance in full. A low APR is good – and not accruing debt is even better! When selecting a credit card, check the APR as well as the card’s introductory rate. Many credit cards offer 0% APR, but only for a certain number of months. There could also be a penalty APR for making a late payment or going over your credit limit.
Fees
Fees on a credit card can add up fast! Look at a card’s late fee penalties, which indicate what you’ll be charged if a payment isn’t received on time or if you don’t meet the minimum monthly payment. If you’re planning on spending time outside the country, check foreign transaction fees. It’s also a good idea to evaluate a card’s annual fees, although keep in mind that sometimes, a great rewards structure could be worth a higher yearly fee.
Will You Need a Co-signer?
Naturally, if you’re applying for your first credit card, you might not have any credit history. In this case, having a co-signer – such as a parent or guardian with a good credit score – could improve your chances of being approved for a card or getting a better interest rate. However, most credit card issuers no longer allow for co-signers; so if you don’t have a co-signer, don’t sweat it! Instead, look for a credit card that caters to students or other first-time users who are just starting to build their credit.
How to Compare Credit Cards
Every credit card is required to provide consumers with a disclosure chart outlining all fees and terms, including costs, interest rates, and so on. Check out this link for a closer look at what you can expect to see on a credit card disclosure, and how to evaluate all these numbers and terms when deciding which credit card is best for you.