You are probably constantly inundated with credit card offers. You can even receive several in the mail every day.
While it can be tempting to sign up for every card you are offered, you have to consider a number of things before applying for a credit card.
Do your research at the credit card company, as well as a specific card account features, benefits and any fees. You also need to be sure that you are financially ready to take on the responsibility of a credit card.
Credit cards can be a powerful financial instrument if handled correctly. However, many people make mistakes with their credit cards and end up with credit card debt, so ask yourself the following before signing on the dotted line.
Why are you considering getting a credit card?
In short, there is only one good answer to this – you are thinking about opening a credit card to build credit. If this is the case, you must ensure that you act responsibly with your card. You have to pay off the balance in full every month, and not sure your credit card for things that you cannot afford otherwise.
This means that you still stick to your budget. Remember, it can be easy to put that new pair of shoes on your shiny new credit card, but you will eventually have to pay that money back, plus interest.
- Limit the number of credit cards you have.
- If you get a new card because another is maxed out, you should not get the new credit card. Instead set up a budget and work it off paying it off.
Look at the Interest Rate
Many cards will seduce you with an introductory interest rate, or April, of zero percent. While this may seem like a big part at the time, make sure you pay off your balance during the promotional period. If not, you will be forced to pay on your card with the new interest, which is likely to be higher. It can even jump to 15-20 percent.
Even if the card is offering a promotional rate, make sure to investigate the interest after the promotional period ends. Look carefully and look for the lowest interest rate that you are eligible for. It will save you money in the long run.
- In addition to the introductory rate be sure to look at the APR you pay after the promotional period is over.
- The best way to qualify for the lower rates is to have a higher credit score, which means that you do not use too much of your credit and you have your payments on time.
Look for a card with no annual fee
There are so many credit cards available that you do not have to pay an annual fee to use your credit card. Many cards try to offer you cash back or other rewards, as long as you pay an annual fee with the card. But don’t be fooled. There are rewards cards that don’t charge an annual fee, so you have to keep looking.
- Do your research and find a card without an annual fee. A good place to start would be with your current bank or credit union. You can also research online.
Consider the Rewards Offered
If you are going to pay the entire balance at the end of every month, you should look carefully at the rewards that you can earn using your credit card. In general, the best deals are on the cash back card. These cards return a portion of your spending to you. You may be able to cash these rewards in for a higher amount on a gift card.
Travel rewards cards are other good options. These cards can earn you points or miles per month to use in the direction of travel, which can save you money.
- Take the time to read reviews about the different rewards programs. Sometimes the limitations on rewards that can make it difficult to use them.
- Only use rewards cards if you plan to pay your balance in full each month.
Look at the sanctions
You must also investigate and understand the penalties or fees associated with your card. For example, your credit card company may raise your interest for a late payment – and that is in addition to a late payment. Exceeding your card balance will also cause a bump in your interest.
- Understanding how the card works is the best way to make the majority of the card without incurring any fines or additional interest.
- If a card has high fines, you’d better choose another card.
Limit the number of cards you have
Ideally, you only need one or two credit cards in total, including store credit cards. You do not need more than necessary. It is too easy to completely overwhelm yourself with debts if you have more than one credit card.
The safest practice is just a credit card that you have to pay off entirely every month, especially if you have just started using credit cards. If you feel like you need an extra card, consider taking out a prepaid credit card that does not charge or expire monthly.
- Choose only one or two credit cards that you use. This can keep you from accruing too many credit card debts and help to keep your debt-to-income ratio in check.
- Avoid using store credit cards, which usually have extremely high interest rates.