There are lots of pros when it comes to getting a credit card: the ease of making purchases without carrying cash, the ability to build and maintain great credit so that you’re able to borrow money at a cheaper rate, and the opportunity to rack up rewards that can then be cashed in for travel, or cash and more, to name a few.
Based upon the number of solicitations that you receive in the mail (not to mention the countless eager salespeople trying to get you sign up for a store card), it may seem like every bank wants to give you a credit card. But that doesn’t mean that you should just sign up for one without giving it much thought. After all, getting a piece of plastic is a big responsibility.
Here’s what you need to know before applying for a credit card.
The Terms and Conditions
Details, rates, fees, rewards can vary greatly from card to card, so you’ve got to know what you’re signing up for. This means reading the terms and conditions (or “pricing and terms,” etc., some issuers use different names when referring to the terms of the offer) be sure you are also reading the fine print. Make sure and be aware of what your APR (annual percentage rate) or what’s commonly known as your interest rate is — even if you never plan to carry a revolving balance. That way, if something happens and you aren’t able to pay your bill in full, you aren’t shocked when you get hit with an interest charge of, say, a variable APR of 25.99 percent. It’s also good to know if that interest rate could increase if you miss a payment or make one late.
Credit cards are notorious for having fees associated with them, but if you’re a responsible user, having plastic won’t cost you an arm and a leg. These are the most common charges that you should be on the lookout for:
- Annual fee: In general, credit cards that offer rewards programs are the ones that levy a yearly charge. (That’s not always the case, however, which is why it’s important to read all of the terms and any fine print.) While you may balk at paying it simply to have a credit card, it can be worth it if the rewards that you earn outweigh the annual fee; if not, opt for a different card. In some situations, a card issuer may waive this fee for the first year, or they may offer a $0 introductory annual fee for the first year, then after the first year they will charge you an annual fee.
- Late payment fee: Forgetting to pay your credit-card bill on time can have expensive consequences. While the cost varies from card to card, it’s easy to avoid by enrolling in auto bill-pay or putting an alert on your calendar several days before the due date. Keep an eye on your credit card payment due date, so should it change you can make any necessary adjustments to any auto bill-pay or alerts you set up.
- Foreign transaction fee: Unless you have a piece of plastic that’s specifically geared towards international travelers, it’s likely that you’ll be charged extra (usually 3 to 4 percent of the transaction) as a foreign transaction fee of each transaction made in a foreign currency or made in U.S. Dollars that is processed outside the United States.
- Cash advance fee: Want to borrow cash against your credit line? It’s going to cost you — around 2 to 5 percent of the advance — and that’s on top of any ATM fees you’ll be charged as well. Even more bad news? If you don’t pay your balance in full, the interest charged on the cash advance portion is often significantly higher than what you pay on purchases. Plus they will begin charging interest on cash advances on the transaction date.
- Over-the-limit fee: This charge is pretty self-explanatory. Thanks to the CARD Act, you have to opt-in for the ability to make a purchase that exceeds your limit — an option that you shouldn’t take advantage of. Take our word for it, having your card rejected is better than paying this fee.
When it comes to credit cards, you have countless options, including numerous ones that offer various types of rewards. If you’re a globetrotter, you may want to consider a card where you earn miles or points that can be redeemed for travel-related rewards, like air travel or hotel rooms here are some options from our partners for airline and travel rewards. Or, if you’re looking for flexibility, a card that offers cash-back or other rewards might be better for your spending habits – here is a selection of rewards cards from our partners.
Redeeming rewards aren’t the only perk you can look for. Perhaps, you’re looking to benefit from a low interest rate credit card, check out these cards from our partners. For small business owners, there are business cards that may offer incentives that may be worth a look from you.
The Ability to Qualify
You may not realize this, but just because you receive something in the mail offering you a credit card doesn’t mean you’re automatically going to be approved to be a cardmember. In order to be approved for the card, issuers require you to meet certain qualifications — part of which your credit must fall into a predetermined range (think: “poor,” “average,” “good,” “excellent”) listed on the application. To know which range you fall into, you’ll need to know your credit score, which you can do for free at CreditSesame.com. For help on which classification your three-digit number falls into (and the best cards for each category), click here. Your credit score or range is not the only factor a card issuer looks at when they review your application so keep this is mind.
If your score is lower than what the card requires, you may not want to bother submitting an application. Why? Applying for a credit card could cause your score to dip slightly, and if it’s already low, you don’t want it to fall anymore.
After all, one beneficial aspect of having a credit card is building — not harming — your credit.
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