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Nowadays many
credit card
companies offer perks to lure new customers
ranging from introductory offers with zero percent
interest for transferred balances, Reward Programs
offering airline mileage and cash back, and
discount programs with select merchants. While
these offers may be very enticing, there are five
key factors, none of which include perks, that you
should consider when choosing a credit card.
FEES
One of the first factors to consider when
selecting a credit card is the number of fees
associated with using the card and the totality of
all of them if incurred. Companies can charge a
variety of fees with the most common being annual,
closure, over-the-limit and late fees. Because,
not all companies charge the same fees and the
level of the fees can also differ, it is important
to read all of the fine print and details that
accompany any credit card offer.
Annual Fee
An annual fee
is a membership or participation fee that is
charged for having a card. An annual fee can
range from $25 to $50.
Closure Fee
Some companies also charge a closure fee when an
account is closed. This fee also falls within the
$25 to $50 range.
Over-the-Limit Fee
An over the limit fee is assessed when the sum of
your purchases and fees exceed the amount of
credit you have available for new charges.
Generally speaking, this fee is around $25.
Late Fee
Late fees are charged when payments are past due.
Some companies assess late fees as early as one
day after the payment due date. Late payments can
also trigger an increase in your annual percentage
rate.
ANNUAL PERCENTAGE RATE
The annual percentage rate (APR) is by far one of
the most important, if not the most important
factor to consider when selecting a credit card.
The APR,
which is stated as a yearly rate, is the interest
rate applied to outstanding balances. Low rates
are preferable since this means you will be paying
less to use a credit card. One single credit card
can apply a different APR for balance transfers,
cash advances
and purchases.
CREDIT LIMIT
You should also consider the level of credit that
is being offered when selecting a credit card. A
credit limit
is the amount of money that is available for
purchases, cash advances,
balance transfers, fees and finance charges.
Credit limits can start as low as $200 for
department store credit cards
and go into the thousands for major credit cards
(Visa and MasterCard)
depending on your credit rating
and income.
SECURED VERSES UNSECURED CARDS
Another factor to consider when selecting a credit
card is whether the card is secured or unsecured.
Users of secured credit cards
pay a deposit to obtain credit. These offers
often appeal to two classes of individuals, those
who are very young and are having a difficult time
establishing credit and those who have blemishes
on their credit reports
that prevent them from obtaining unsecured
credit. The credit limit for secured credit cards
is usually determined by the amount of your
deposit.
Unsecured credit cards are by far the most widely
held cards and tend to have higher credit limits.
GRACE PERIOD
The final factor to consider, the grace period,
is the length of time you have to pay your credit
card balance in full without accruing interest
charges. The ideal card will have a grace period
of 25 days or longer. If you carry a balance from
month to month you will pay interest regardless of
how many days are in a grace period with only new
purchases being exempt for 25 days. The grace
period is usually not applicable to cash advances
and balance transfers.
PERKS AND REWARDS
While not one of the five key factors, I still
felt it necessary to write a blurb on perks. Many
credit card companies offer perks as an incentive
to lure new customers and reward loyal ones.
Perks can include a Rewards Program that awards
you with airline mileage and cash back
on your purchases. Some cards also offer
discounts at select merchants and credit card
registration, which protects you if your card is
lost or stolen. Unless you are a frequent user of
credit, perks should be the last item you consider
when selecting a credit card because the biggest
payoffs tend to go to the biggest spenders.
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