For those who struggle with debt, credit cards can thwart efforts to live within a budget by tempting one to spend. However, having a solid credit history and high credit score are key to gaining access to the best rates and terms for a variety of major purchases, such as cars and homes. In fact, as we’ve previously written, a bad credit score can even complicate your efforts to pay off outstanding debt. Therefore, keeping a credit card account open while avoiding using the plastic is a strategy to enjoy the benefits of a lengthy financial history.
Along these lines, what should your criteria for choosing a credit card be? Every case is different, but here are some suggestions:
- Pick a card with the lowest annual interest rate. If you’ve had issues with debt, you’re going to be at a greater risk for carrying a revolving balance from month to month. But keep in mind that this is no guarantee that your interest rate will stay the same forever, since lenders can unexpectedly change the contract terms, including the interest rate.
- Make sure to reconfirm the exact interest rate and other terms for a credit card at your specific credit score number, since the terms can vary depending on rating.
- Ignore the cash back or rewards features of a credit card. These should not be your primary concern when choosing a card, as more often that not the positive financial impact of such programs will be minimal compared to other factors such as your spending behavior and repayment terms.
- Ignore the “instant approval” factor when choosing a card. Cards that offer instant approval oftentimes, but not always, have the worst terms.
- Clearly a card with no annual fee is preferable, but those with a modest fee of $50 or less can be attractive if the interest rates and other terms are significantly better than cards yo qualify for with no annual fee.
- A card with a higher limit sounds dangerous because of the potential to get into more debt, but a high limit allows you to demonstrate a lower debt-to-limit ratio, which is a major factor in your credit score. Your own spending behavior should be a factor in deciding whether to choose a high or low limit card.
- the interest rate (APR), and how long it lasts
- the interest rate (APR) after the introductory period ends
- the grace period for making payments
- finance charge amounts
- annual fee(s)
- over-limit fees
- fees for missing payment deadlines
Tags: choosing credit card, credit card debt, credit card decision, credit card rates, credit limit, credit score, debt, personal debt
