With all of the credit card offers that we are bombarded with on a daily basis, it is no wonder the American public is buried in debt.
No-interest gimmicks that are only the precursor to outrageous finance charges later on are a common downfall, as well as high annual fees that take up half of the low credit limit available and the misunderstanding of how credit cards are meant to work in general.
Below is a quick tutorial on the proper way to not only find the right card for you, but also on how credit cards really work.
First, spend about $10-$30.00 and take a look at your credit report to see if you should really be trusting yourself with a line of credit, or if you should perhaps learn to handle your finances a little better first (a copy of your report will be about $10.00 at www.equifax.com).
While you may be thinking that a credit report is only meant for lenders to look at, it will also give you some honest, valuable information about yourself that you can take to heart. If your score is about 630 or higher, you should be able to handle the responsibility of a credit card. If not, well, you really don’t have to worry about it, as there are not many banks out there that will take a second look at your application.
Take a little bit of time to work on the accounts that you already have, and then revisit this article. The reason I say this is because once your receive one card, you are likely to receive many more offers, and if you cannot handle the first one, you will find yourself in a deep pocket of financial trouble in no time.
Now, if you are adamant about getting a credit card, there are a few key factors to shop for, as not all credit offers are the same. First, take a look at the APR, or annual percentage rate. Rates for lower credit scores generally range between 17%-21%. If your credit score is 650 or higher, you should expect a better rate than this.
Now, many cards will offer an introductory 0% rate for several months in order to get customers to sign up quickly. There is nothing wrong with taking advantage of this great perk, and it is something that you should actually look for, but remember to have a balance of zero by the time the interest is to be added on or you’ll be in for an unpleasant surprise.
Secondly, look at the late fees and grace periods. Some cards will allow a grace period of several days before attaching a late fee. Others will not. Some cards will have one preset late fee, regardless of your balance, and others will increase your late fee according to how high your balance is. This is a red flag.
While you should be paying your bills on time anyhow, there will probably come at least one time during your use of the card where a late payment is unavoidable. If the late fees are adjusted according to your balance, you could be paying upwards of $50.00 or more for balances as low as $200.00!
Finally, find a card with no annual fee. They are out there, although you may have to specifically request them from your preferred company. If your company does not offer any cards without annual fees, regardless of how great your credit score is, move on to the next company.
Annual fees can be hundreds of dollars per year, and if you start out with a low credit limit, these fees can take up almost all of your available credit. For example, many cards offer initial credit limits of only $200-$300.00 for first time customers who do not have a lengthy credit history.
If you have an annual fee of $150.00, it will be charged up front, and interest will be added to it monthly. Also, if you have a balance of just $50-$100.00 at the time that the fee is added again at the end of the year, you will face overlimit fees. It can really be an ugly struggle to pay these fees in order to actually be able to enjoy your card!
Remember, a credit card is a great way to build your credit score. These cards can also be a great source of financial comfort and padding in case of an emergency. They are not meant to add to your monthly spending limits, however.
Many people often confuse having a credit card with having extra spending money, when in fact you are not adding to your monthly income level at all. In reality, you are taking away from it when you factor in all of the fees that must be paid. Find a card or two that will give you peace of mind in case you need them, and remember to use them responsibly.