Tips for Getting a Credit Card
If you want to get a credit card it is important to choose wisely.
The choice you make today can affect your future credit score and your overall debt
to income ratio. Many people choose hastily because they receive an offer in the
mail or see a pop-up ad online promising 0% interest or instant approval. If you
read the fine print, however, you may find skyrocketing interest rates and unreasonable
fees if one payment is late or when the “promotional period” ends. Before you get
locked into high interest rates and unacceptable credit terms, it’s important to
do your research so you can choose wisely. Here are the key considerations for
getting a credit card.
Consider the card type – there are three:
Secured cards
This type requires a deposit to get a credit card. These cards are designed for
people who have no credit, who have filed for bankruptcy or have had other credit
problems in the past. The credit limits are usually low but they do allow the card
holder to rebuild their credit score under controlled circumstances. It is important
to read the agreement terms thoroughly so you can use the card and make payments
wisely.
Regular cards
These cards are pretty straightforward and can be obtained by people with medium
to high credit scores. They do not require a deposit, they have higher credit limits
than secured cards and usually offer a few features such as reward points or frequent
flier miles.
Premium cards
Often labeled as “gold,” “platinum” or “titanium,” these cards offer high credit
limits to well-qualified people who have no issues with getting a credit card.
These cards usually offer other features such as warranty protection, reward points,
car rental insurance or frequent flier miles.
Consider the type of Annual Percentage Rate (APR):
Many people are not aware that there are various types of annual percentage rates.
Before you get a credit card, look for the type of APR in the agreement
terms. You will see one of the following:
Purchase, cash advance and balance transfer APR
Cash advance and balance transfer APRs are often higher than the APR for purchases.
Be sure to check them all before getting a credit card.
Introductory or delayed APR
These rates are temporary and will increase after the introductory or promotional
period ends. Find out the increased rate and the date or terms for the increase.
Variable rate APR
These rates vary according to the Prime Rate (the interest rate charged by the bank
to their most creditworthy customers). Look for the percentage rate that may be
added to the Prime Rate to determine the monthly rate.
Penalty APR
The APR on these cards will increase if your credit card payments are late. If the
card has a universal default clause, your rate may increase if you’re late paying
any bill — not just your credit card payment. Avoid the universal default clause
at all costs when you get a credit card.
Tiered APR
Some cards offer varied rates for different outstanding balance levels. For example,
a balance of $1–1,000 may carry an APR of 15 percent and balances above $1,000 may
have an APR of 18 percent.
Credit card companies are required by law to list all of the terms of the credit
card agreement. These are just some of the factors you should consider when you
get a credit card. Compare more than one card and consider all the terms and features
before making a decision.
The choice you make today could save you literally thousands of dollars in the
future!