Introduction: Choosing the Right Credit Card for Your Needs
Credit cards are everywhere—offering enticing perks, low introductory rates, and balance transfer options that seem too good to pass up. With so many choices, choosing a credit card can feel overwhelming. The key to making an informed decision is understanding credit card terms, fees, and interest rates to determine which option best suits your financial habits. Whether you plan to pay off your balance each month or carry a balance over time, evaluating factors such as annual percentage rates (APRs), grace periods, and balance transfer fees can help you avoid unnecessary costs. By learning the lingo and asking the right questions, you can confidently choose a credit card that aligns with your spending and repayment habits.
Learn the lingo
In order to evaluate credit card offers, you’ll need to learn the language they use. Here are some of the more important terms.
- Annual percentage rate (APR): the cost of credit as indicated by a yearly (fixed or variable) interest rate. This rate and the periodic rate (the APR expressed as a daily or monthly factor) must be disclosed to you before you become obligated on the card.
- Balance computation method: the formula used to determine the outstanding balance on which you’re charged interest for the billing period.
- Finance charge: the cost of credit for the billing cycle, expressed as a dollar amount and determined by multiplying the outstanding balance by the periodic rate.
- Fees: charges (other than the finance charge) that may be levied against your account. Common examples include an annual fee, cash advance fees, balance transfer fees, late payment fees, and over-the-limit fees.
- Grace period: the length of time prior to your payment due date during which you may pay off your account without incurring any finance charge.
Once you can talk the talk, ask questions
Any credit card will cost you something, but depending on the terms and conditions, some are more costly than others. When evaluating a credit card offer, here are some points to consider:
- What’s the interest rate? Is it fixed or variable? If variable, how is it calculated?
- Will you be charged different interest rates for purchases, balance transfers, and cash advances?
- What method determines the outstanding balance used to calculate the finance charge?
- Is there an annual fee, and what other fees may be charged?
- What’s the length of the grace period (if any)?
What you should look for depends in part on how you’ll use the card. If you intend to pay off the balance each month and won’t incur any finance charges, obtaining a low interest rate is less important than finding a card with no annual fee, minimal transaction fees, and a long grace period. If you’ll carry a balance from month to month, you’ll want a low interest rate and a balance calculation method that minimizes your finance charges.
A word about balance transfers
Perhaps you’re not currently using your credit card, but you want to minimize the finance charge on your existing balance. One way to do so is to transfer your balance periodically to a new card with a low introductory “teaser” rate of interest. If you choose to “surf” in this fashion, be cautious. Watch out for:
- A low interest rate on new purchases, but a higher interest rate on balance transfers
- A low introductory interest rate that applies only for a very short period of time
- Balance transfer fees, particularly uncapped amounts calculated as a percentage of the balance transferred
- Termination fees and retroactive interest charges levied if you decide to surf the next wave and close the account or transfer the balance to another card before a specified time period has elapsed
When you transfer a balance from an existing card to a new one, it’s a good idea to close the account you’re leaving. By doing so, you won’t be tempted to use the card again (at a higher rate of interest once the introductory offer period has expired), and you’ll minimize the potential for fraudulent use or identity theft. What’s more, if you don’t close such accounts and later try to transfer your balance again, a new card issuer might turn down your application, afraid you’ll incur too much debt by running up new balances on dormant, but open, credit card accounts.
Voice your concern if you’re turned down
If you’re turned down for a credit card, the issuer must inform you specifically why you were turned down or tell you how to get this information. When the rejection is based even in part on information contained in your credit report, you’re entitled to a free copy of the report from the credit bureau that issued it. Get the report and review it; if you discover incorrect notations on it, dispute them. Then contact the card issuer to plead your case, informing the issuer of any corrections made to your credit report. With persistence, you may be able to convince the issuer to approve your credit application.
Speak up for your rights
Your consumer rights related to credit cards are protected by various federal laws. If you feel that your rights have been violated and you can’t resolve the issue with the creditor, you can file a complaint with the Consumer Financial Protection Bureau. Visit www.consumerfinance.gov for more information.
Conclusion: Making Smart Credit Card Decisions
Choosing a credit card isn’t just about finding the lowest interest rate or the best rewards program—it’s about understanding the terms and using the card responsibly. Knowing how balance transfers work, being aware of potential fees, and staying informed about your rights as a consumer can help you avoid financial pitfalls. If your application is denied, reviewing your credit report and addressing inaccuracies may improve your chances of approval. Additionally, if you ever feel that your rights have been violated, consumer protection laws are in place to help you take action. By making informed choices and managing your credit wisely, you can maximize the benefits of your credit card while minimizing financial risks.
Scarlet Oak Financial Services can be reached at 800.871.1219 or contact us here. Click here to sign up for our weekly newsletter with the latest economic news.
Source:
Broadridge Investor Communication Solutions, Inc. prepared this material for use by Scarlet Oak Financial Services.
Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on individual circumstances. Scarlet Oak Financial Services provide these materials for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
