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5 Things to Consider When Choosing a New Credit Card

5 Things to Consider When Choosing a New Credit Card

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Advance Personal Finance

Advance Personal Finance

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Once you make the decision to apply for a new credit card there are quite a few different factors that you need to think about.  A new credit card is a big decision for any consumer.  Before you apply for your next credit card make sure you follow these five tips.

Be aware of the interest rate

In an ideal world none of us would ever carry a credit card balance from month to month.  That would mean interest charges wouldn’t even be an issue.  Unfortunately, that is not always going to be the case.  Things can happen and you can find yourself in a bind.  That means it’s extremely important to pay close attention to the interest rate each credit card issuer is charging.

A lot of cards will offer introductory rates to try and lure in customers.  They will give you 0% APR for the first 6 or 12 months and then they raise it to the standard rate.  Before you sign up make sure that listed rate is something that you are willing to pay if needed.

Understand how they calculate your balance

As I stated before we never want to carry a balance on our credit cards, but sometimes it happens.  It’s important to understand how each issuer will calculate any finance charges on a balance.  The majority of credit cards will use an average daily balance method.  They will add the daily balances and then divide that by the number of days in the month.

Understand the annual fees

One thing that I can’t stand is annual fees.  It doesn’t mean that I won’t pay them, but the benefits from the card must justify it.  Most reward credit cards waive the annual fee for the first year, but charge it for each subsequent year.  A good example of a card that has an annual fee that is worth the money is the Hyatt Visa card.  The fee is $75, but each year you get one free night at any category 1-4 Hyatt Hotel.  This value could be worth $300 or more.  Make sure you assess your own situation to make sure paying an annual fee is right for you.

Understand your credit limit

The credit limit is the total amount of money that the issuer is willing to let you borrow at any given time.  Before you can truly understand what kind of limit will be best for you it’s important to understand what type of borrower you are.  Are you someone that struggles to stay within a budget and spends more than they can repay?  If you are then a credit card probably isn’t the best thing for you.  If having one in your wallet is a must then just make sure the limit is fairly low.

If you are like me and put all of your monthly spending on a credit card, but pay it off at the end of the billing cycle then it’s acceptable to have a higher limit to handle all the purchases.  If you apply for a credit card and you are not comfortable with the limit that you were given it’s okay to call and have it reduced.

Find a card with a long grace period

One of the most important things for you to do before applying for a credit card is look to see what the grace period is.  The grace period is the time from when you make a purchase to when they begin accruing interest.  Look for cards that have 21 days or more before the interest starts to add up.  If a card calculates interest from the time of purchase then it’s not for you.

Wrapping it up

By following these tips you will be able to make a more informed decision when it comes to applying for your next credit card.

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