There are many different types of credit cards, made for people with different lifestyles. What are the basic features of a credit card? What’s up with interest rates? Learn the basics of using a credit card, what to expect, and what kind of card will be best for you.
Hi my name is John Ulzheimer and I am a credit expert who contributes to the Credit Card Insider blog. Today’s question is this: What factors should I consider before getting a credit card?
Well in my mind there are four factors that you should consider before applying for a credit card. The first is usability. Visa, MasterCard, Discover, and American Express are largely accepted by almost all merchants and and service providers. Having said that there are some places that do not accept certain types of credit cards so for you personally it’s probably not a bad idea to do a little bit of research to determine what credit cards are accepted where you like to shop and clearly if there is a card type that is not accepted you should probably avoid applying for that type of card so that you’ll have maximum usability and won’t ever have to dig through your wallet to find a secondary form of payment.
Number two is the credit limit or buying power. Now you’re not going to know what the credit limit is before you actually apply because that’s something that’s determined by the credit card issuer during the underwriting process. However, if you apply at a large credit card issuer, what some people refer to as a megabank, you’re very likely to get a larger credit limit than if you apply for example for a retail store credit card or a credit card issued by a credit union. It’s not uncommon for the megabanks to issue credit limits 10, 15, 20, 25 thousand dollars in some cases even more.
Retail store cards you’re like to get credit limits below one thousand dollars to start. Credit unions probably in the neighborhood of five to ten thousand dollars. So assess the buying power, or the capacity of the card before you apply for it because it may not be something that you’re gonna be able to use as aggressively as you may want to use it.
Next and certainly not last is the cost of carrying a card. There’s two primary costs involved with using a credit card. One is the annual fee. Many cards have annual fees, many cards do not have annual fees. Some people are very averse to paying an annual fee on a credit card and if you are you have plenty of options that are going to be free. However don’t discount a card simply because it has an annual fee because most cards that have those types of annual fees have pretty aggressive rewards programs, which we’re going to get to in a minute.
Next is the interest rate. Again you’re not going to know your interest rate before you apply for the card because that’s something that’s determined during the underwriting process but the interest rate on a credit card in today’s environment is generally in the neighborhood of about 15% which is likely going to be the most expensive debt that you’re ever going to carry if you do choose to carry a balance from one month to the next.
So here are some things to consider when it comes to interest rates. Credit cards issued by credit unions while they may have lower credit limits also are likely to have lower interest rates. It’s not uncommon for a credit union to issue a credit card with an interest rate below 10 percent which is actually pretty good relative to the rest of the industry. On the exact opposite side of the spectrum, retail store cards generally have interest rates in the mid to high 20’s which is extremely expensive. General use credit cards like those issued by the megabanks are going to have interest rates in the neighborhood of 15%. So they’re right around in the middle.
So keep that in mind before you apply for your card because if you know you’re going to be carrying a balance from one month to the next and don’t have the ability to pay it off in full every month, then the interest on the card is going to be something that you’re going to need to be very cognizant of because it can become very expensive very quickly if you do choose a card and you end up with a very high interest rate.
Last but certainly not least rewards programs. Rewards cards are very common these days it’s actually very easy to find a rewards card for your purposes, you can find one that gives you cash back, you can find a card that gives you points that you can use to buy merchandise you can find credit cards that give you airline miles that you can use to buy airline tickets if you’re a frequent traveler Some of these cards have annual fees, and that’s used to help subsidize the cost of the rewards program. Some of these cards do not have annual fees and so therefore you’re getting a rewards program essentially for free. So you have a lot of options.
There are countless credit card options and you’re gonna want to do some research for example at Credit Card Insider to determine which is the best card fit for you. To learn more about this topic or anything else having to do with credit cards please visit credit card insider.com. Thanks a lot for your time.