12 Questions to Ask to Ensure You Get the Best Credit Card for You
Today, it is easier than ever to get a credit card: Just enter your Social Security number, punch in your address and financials, and you’ve got credit. Credit card issues practically throw plastic at you through online ads, commercials, and even in the checkout lane at your local department store.
But just because you can get a credit card with ease doesn’t mean you should get one.
You need to know what credit card is best for you before handing out your personal information like a business card. Here are 12 questions to ask yourself before getting a credit card to know if it is the right one for you.
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When looking into a credit card, the first thing that must come into mind is your credit. This is how the credit card company will determine if you’re eligible for the card and what your rates will look like. Yes, contrary to what some believe, credit card companies, like traditional lenders, base your interest rate on your creditworthiness.
If your score is a between a 580 and 700, you will likely get approved for a regular credit card with an interest rate in the mid- to high-20-percent range. If you fall below a 580 or have a several serious negative marks on your credit report, traditional credit card companies may deny you. While it’s no fun getting that fat rejection notice, it is not the end of the world. There are tons of legitimate secured credit cards that offer all the same benefits of a traditional credit card and help you build credit.
You can pull your credit score from several of the free credit report sites, like Credit Karma and Credit Sesame, or buy it from one of the major credit bureaus, including TransUnion, Equifax, and Experian.
Having a credit card is a huge responsibility. You can quickly go from being financially free to strapped down to thousands of dollars in debt bearing 26-percent interest or more with just a swipe of that plastic — or metal, in some cases — card.
If this is your first time wielding this powerful financial tool, you want to treat it like any other tool: learn how to use it the right way. Some credit card companies have special cards tuned for first-timers looking to ease their way into the financial world. These cards offer lower credit limits, lower interest rates, and benefits tuned toward the younger crowd, like good grade bonuses.
These cards can help you get the hang of using credit without letting you sink so deep in debt it’ll take years to pay off. Plus, the added perks like good grade bonuses incentivize other parts of your life.
Sorry, credit cards are not access to free money. In fact, they are some of the most expensive ways to borrow money if you use them incorrectly. This means you must take your financial situation into account before getting a credit card.
The most important thing is to ask yourself: “Can I pay off the entire balance each month?” If your budget is tight, and you can only afford the minimum payment each month, you may want to think twice about that credit card. Making just the minimum $25 monthly payment on a $300 purchase means it will take you 15 months to pay it off and will cost you $53 in interest.
If you are in this situation, you can search for a credit card with a 0 percent introductory rate that will let you buy that $300 item and pay it off over 12 months without interest. But there is a catch you have to consider before opting for 0-percent interest.
Knowing why you want a credit card will play a huge role in deciding which credit card is best for you. Each credit card issuer has its own set of benefits, so you want to make sure these align with your needs.
If you want to finance a big purchase, you will want a 0-percent interest card so you can pay it off over time without interest. If you are looking to build your credit score, you probably need a secured card or a bad-credit credit card. If you are heading overseas, you’ll want one with no foreign transaction fees. And so on.
Before choosing a credit card, make sure to read every benefit carefully to make sure it align with what you need it for.
Question #5, Part One
Promotional interest rates are amazing — I take advantage of them all the time. But some have one big catch: deferred interest.
Credit card companies don’t offer 0-percent interest out of the goodness of their hearts. They want to make money off you and will bet on you overextending yourself. You’ll see that no-interest deal for up to 18 months and think “Well, I can buy this $3,000 OLED TV and pay just $167 per month for 18 months.” And you would be 100-percent accurate — until you mess up and end up paying all the interest you thought didn’t apply to you.
The CFPB warns that some credit card companies work the no-interest deal by using what’s called deferred interest. So every time you send in that $167 monthly payment, the credit card company is tallying the would-be interest and tucking it away for a rainy day. One month, your car breaks down, so you make the minimum credit card payment and put the rest of the $167 toward your car. If forget to make up for that smaller payment in later months, you could be in for a big surprise.
Question #5, Part Two
After that 18 months is up, that one minimum payment left you short of paying off the balance by just over $100. Is the credit card going to cut you a break? Nope, it will automatically stick you with the hundreds of dollars in deferred interest charges you never knew were there. And that’s the “beauty” of deferred interest.
So, before choosing a card with a no-interest introductory period, read the fine print. If the terms make any mention of “deferred interest” you are better off choosing a card with a straight 0-percent introductory rate.
Store credit cards are generally the ones that use this deferred interest tactic. Most bank-issued credit cards offer true 0-percent terms without the surprise interest at the end.
There are thousands of credit cards on the market, including your standard plastic and store cards. While most stores will accept your typical Visa, Mastercard, Discover, and American Express cards, things get a little tighter once you stray away from these giants of the industry.
If you see an attractive offer from a store credit card, you need to consider just how often you’ll use this card and if it is worth having the account on your credit report. If there is only one chain store that accepts that card, and that store is 30 miles from your house, you will likely never use it and miss out on its benefits.
In this case, you would be better off using one of your existing cards or applying for a new card from one of the staple card issuers that gives you an equally good offer.
For example, a Home Depot credit card may give you 0-percent interest for six months on $250 purchase, but you never go to the store and will probably never use this card again. Instead of hauling around that useless Home Depot card forever, you can get a Visa or Mastercard with a 0-percent introductory offer on all purchases.
Not only will this give you 0-percent interest for a longer period, but it will also allow you to get that same 0-percent APR at other stores. It’s a win-win.
Question #7, Part One
Despite often having a negative aura surrounding them, credit cards can play a big role in achieving your financial goals.
One great way a credit card can help you is if you are a freelancer whose goal is to stabilize cash flow. By nature, a freelancer’s income varies greatly week to week, leading to them putting off bills until they receive enough client payments to cover the amount. Instead, freelancers can pay their bills throughout the month on a credit card and just pay the card statement at the end of each billing period. This keeps the freelancer’s bills paid on time and the outflow of cash limited to once per month.
When using this method, you have to pay the statement balance in full to avoid interest charges. Also, if you can combine this process with an attractive rewards program, you can reap the awesome benefits for just paying your bills.
Question #7, Part Two
If you want to buy a house but lack the credit, a low-limit or secured credit card can help give you the boost you need to get approved. Also, if your credit usage it too high to get approved for a loan, getting a new credit card and not using it can decrease this ratio and get you to a point where the bank may approve you.
Starting a micro-business may not require the same capital as a small business, but you still need access to funds. Oftentimes, banks are hesitant to give these fast-start businesses the loans they need, so these business owners may rely on other means of financing. This is where a credit card with an aggressive promotional interest rate spread out over the first few months of being a cardholder can come help. This could be a great way to get that business rocking without taking on a high-interest loan.
Introductory bonuses are great ways for you to score bonus points and awesome rewards, but they are also great ways for credit card issuers to attract applicants without paying out a dime. These companies bank on applicants biting on these offers without realizing they may struggle to hit the requirements to get the bonus points. Don’t be that person.
Read the fine print of the terms closely and determine how certain you are you’ll hit the requirements. The requirements are typically a certain dollar amount during a certain period, like $3,000 in charges within five months.
Be very conservative in your estimates because the last thing you want is to take on a new credit card that offers no benefits to you or, worse yet, charges you an annual fee with no immediate benefits.
After determining you can hit the requirements to get the bonus, you have to determine if these points are worth the hassle and the associated fees. Calculate the cash value of the rewards the credit card is offering and compare that to the annual fee. If the card offers 50,000 bonus points that are worth $500 off travel, but the annual fee is $550, this is not worth your time. But, if the credit card issuer waives that fee for the first year, and you can cancel the card before the next annual fee hits, you are good to go.
As more credit card issuers emerge, more rewards become available. This is where you can set yourself up for awesome freebies, but don’t jump on the first one you see.
Rewards credit cards all have their own nuances. Before settling on a rewards credit card, make sure you will use it in a way that maximizes the rewards. There is no point in getting a credit card that offers rewards at gas stations if you drive a Tesla or huge rewards on airline tickets if you’re afraid of flying. If you have no preference, there are plenty of cards that offer smaller rewards on all purchases or bonus rewards in rotating categories.
On the other side of the coin are the rewards themselves. If you work 80 hours a week and get no vacation time, there is no need to get a card that offers hotel and airline rewards. If you cannot find a rewards credit card that offer rewards to suit you, there are plenty that allow you to redeem rewards for gift cards, cash or account credits.
There are tons of credit cards that require no annual fee, but some more exclusive ones have fees that can reach hundreds of dollars. While a $495 annual fee may turn off some credit card seekers, there is a reason they are there.
These fees help credit card issuers pay for the basic benefits they offer. Some cards with the highest fees come with great benefits like credits for TSA PreCheck or Global Entry, airline credits, free checked baggage, premium airline boarding, free ticket upgrades, free hotel stays and upgrades, access to exclusive airport lounges, unusually aggressive rewards programs, and much more.
As you can see, many of these features center on travel, so folks who frequently buy airline tickets or stay in hotels will see the benefit in the annual fee. In some cases, though, the aggressive rewards programs make the cards well worth the fee, too.
Make sure to compare the value of the benefits to the annual fee to determine if the fee is worth it.
A vacation can be another great reason to look into a new credit card. Not only can you get promotional financing that can allow you to pay it off over time, but there are other perks that some credit cards offer to make your vacation even more enjoyable and safe.
Thieves love vacationers because they are often more focused on having fun than their security, so they can become easy prey. The FTC requires all credit card issuers to offer zero liability for any fraudulent charges beyond $50, but some cards offer even more favorable terms and more preventative measures to protect from fraud. Finding a card with the tightest security, like the ability to lock your card instantly from an app or texting you when there is a large purchase, and most favorable fraud terms will help ease your mind while on vacation.
Many credit cards also offer other protections that sometimes go unnoticed. First is rental car protection. Anyone who’s rented a car has had the rental company offer added insurance. While this is a great option to protect you and your finances in case of an accident, it is an extra charge you may not have to pay. Some credit cards offer free insurance coverage on any rental car you put on the card, saving you the expense of buying insurance from the rental company. Keep in mind, though, this coverage often does not extend to pickup trucks, vans, and moving trucks.
Some credit cards that are associated with airlines give you special perks with that airline. Things like free baggage check, credits for purchases and upgrades, and priority boarding can save you tons of money, time, and stress.
Question #12, Part One
Credit cards often play a huge role in international travel because they keep you from having to pay sky-high currency-conversion fees or deal with shady overseas conversion practices — like giving you a lower rate because your bill is a little wrinkled (yes, this happened to me). With credit cards now commonplace around the world, you can just swipe and be on your way. But you have to do your research.
If you’re going overseas, there are tons of features that credit cards offer to reduce costs and stress. Global Entry allows you to breeze through customs when you return from overseas travel, plus it includes TSA Pre-Check, which helps you skip crazy security lines and streamline the security process in most U.S. airports. But this comes with a hefty $100 fee every five years. Some travel- and business-focused credit cards will reimburse you this fee every five years, making it free.
Question #12, Part Two
Like all banks, credit card issuers are here to make a profit, and they see travelers as great sources of income through foreign transaction fees. According to Credit Karma, these fees typically hover in the 3-percent range, and the credit card issuer tacks this on every foreign transaction you make. Fortunately, you can find plenty of credit card issuers that charge no foreign transaction fees.
Keep in mind that when you find a credit card with no foreign transaction fees, you still can’t buy that didgeridoo sans fees. Credit card processors, like Visa and Mastercard, charge small currency conversion fees to process the transaction.