What to Look for in a Credit Card | Richard Banks & Associates, P.C.

Credit cards can be a useful tool for many people, but only if used correctly. If you are interested in applying for or opening up a new credit card, there are a number of things you should be thinking about first.

What to Consider Before Picking a Credit Card

If you are interested in applying for a new credit card, there are many things you should consider—six things to be exact.

1. Spending habits. Will you be a person who pays off the credit card balance in full each month or will you carry a balance each month? Are you only going to use this card for emergencies or will it be used for everyday purchases? Are you interested in getting rewarded for your usage? These are just a few of the questions that you’ll need to ask yourself prior to applying for a credit card.

2. Interest rate. If you’re unable or are not planning to pay the credit card balance off each month, the interest rate, or APR (annual percentage rate), is going to be one of the most important things to factor in. Many credit card companies may offer an introductory APR of 0 percent for the first year or a number of months, but the interest rates are commonly between 12 and 25 percent.

3. Credit limit. Your credit history and income will impact the credit limit offered to you by all credit card issuers, as they are effectively letting you borrow money with the intention of having it paid back (with interest). Be mindful of the limit, because if you max out the card or go over, it can reflect poorly on your credit score.

4. Fees & penalties. The credit card companies like making money, and will find many ways to do so off of you. Balance transfers can incur transaction fees, but it’s always possible to find companies who either offer no fees or a 0 percent interest deal for a set amount of time. Paying over the phone could cost money, and there are always late fees to contend with.

5. Balance computation method. Carrying a balance on your credit card means you’ll have a finance charge. You’ll want to know how that charge is calculated—the most common method is the average daily balances are added together and then divided by the number of days in each billing cycle. Beware: There are some companies that compute this balance off of the days in two billing cycles.

6. Incentives. To entice credit card usage, many companies offer rewards programs. These rewards can be cashback or travel options, and many airlines will partner with a credit card company to offer flight miles as rewards. Look into the various rewards programs out there, keeping in mind that there could be limits on how many points you can earn or expiration dates on rewards.

Getting a Credit Card With Bad Credit

While having bad credit can make it a bit more difficult to get a credit card, it doesn’t mean it’s impossible. In fact, credit cards can be an excellent tool for helping rebuild or establish credit.

You may start out with a higher interest rate than normal, but using the card responsibly and making payments on time each month are ways it can help you out. Remember, there is always the option of using a secured or unsecured credit card.

Credit cards can be an excellent financial resource when used correctly, but if not, can lead to financial strain and stress. If you’ve fallen into problematic usage and are unsure of how to recover, talk to the bankruptcy experts at Richard Banks & Associates, P.C.