You’ve probably checked your mailbox and seen countless “you’re approved!” flyers from credit card companies. But if you’re wondering how to choose a credit card when you’re ready to sign up for your first one, finding the biggest, brightest, flashiest mailer is not recommended.
Before you put in your credit card application, take a look through the card’s more detailed information. Hidden inside all that small print may be factors that mean the difference between the perfect credit card and a credit card that could cost you more money than you expected.
Learning how to spot and avoid these red flags can help you learn how to choose a credit card that’s best for you.
1. Outrageous interest rates
The annual percentage rate (APR) can play a major role when it comes to holding on to your money. And if you’re not careful in selecting the right card, you could be paying huge interest fees.
For example, let’s say you use your new card to pay a $1,000 medical bill. You plan on making 10 monthly payments of $100 each plus whatever you owe in interest. If your new card’s APR is 15.90%, a $1,000 balance would cost you an additional $74.31 in interest.
However, if your interest rate is much higher, say 20.00%, interest would shoot up to $93.94 — almost a whole other monthly payment!
2. Pricey transaction fees
Banks make a huge chunk of change by “hiding” little money traps called transaction fees for the cardholder to fall into.
A transaction fee is the amount of money you pay to use your card. It may seem silly to worry about paying a dollar here or there for these things. But transaction fees can range from making a payment over the phone to talking to a customer service agent. You could even be charged for requesting a balance transfer or upping your credit limit!
3. Punishing late charges
Late payment charges on “bad” credit cards can be extremely pricey — upwards of $25 for an occasional miss. Credit cards were so notorious for charging insane late fees that there’s even the CARD Act that keeps late payment fines in check.
However, in addition to that $25 fee (or more if you slip up more than once in a 6 month period), your credit card company could raise your interest rate also as your credit score drops. Essentially, they could punish you twice for one late payment.
Check the fine print on all new cards to see what your bank may do if you fall behind.
4. Valueless membership costs
Your credit card isn’t a country club, but they may act like it.
Many credit cards charge a yearly membership fee to cover the “perks.” But if you’re like most card holders, you probably won’t use those offers or incentives enough to justify a yearly fee.
5. Worthless “rewards”
Those ads for cash back, travel miles, and bonus points for credit cards are everywhere. However, not all credit card rewards are created equal.
For example, with travel rewards cards, point values can vary wildly depending on where you want to go and what you want to do. And with cash back cards, you may struggle to remember what gets you double or triple points each month and which purchases aren’t worth any.
The other issue is with reward sign-ups. A 40,000 travel bonus point offer for signing up may come with the fine print that you have to spend $3,000 in the first 3 months of opening your card. That’s a major hassle if you’re trying to stay within budget or pay down debts.
6. High credit limits
Going after points isn’t the only way credit cards get you to spend more. As someone who is new to credit cards and may have a limited credit history, your available credit balance will probably be on the lower side for your first credit card, perhaps around $5,000.
While this may seem counterproductive, you should avoid credit cards that give you a balance that seems way too high. For many, this is only a temptation to spend more than they have by justifying that they have the credit to do it.
Definitely, be wary of high credit limits when deciding on how to choose a credit card that fits your personal financial situation.
7. Expensive foreign transaction fees
Credit cards can make great travel companions. They are less riskier than carrying cash and they often come with extra protections, such as fraud alerts. However, not every card is an ideal travel companion.
Foreign transactions fees refer to the amount of money you will pay to use your card internationally. That $10 souvenir magnet for your mom’s collection may cost an additional 30¢ thanks to foreign transaction fees, which continue to add up with multiple purchases.
If you’re a big international traveler or even planning an extended trip, this is one fee you cannot ignore.
The best way to avoid foreign transaction fees is by speaking with your credit card company directly before traveling. This helps you decide when it is worth paying for purchases with cash while you’re abroad, as well as choosing a credit card that’s the best for your trip.
8. Lousy customer service
When you’re dealing with something as important as your credit and money, the worst thing you need is a rude or unhelpful customer service agent. Especially since they are usually paid for by your interest rates, transaction fees, and membership costs.
While it’s hard to tell if a credit card will give you an A+ experience each time, be sure to read reviews on each credit card company before choosing a credit card.
If your new card has travel rewards booked through an agent or system, read up on the ease of use and access. The more you know, the better you can get a sense of how the company values your business.
Choosing a credit card that’s right for you
When it comes to your money, learning how to choose a credit card that matches your lifestyle, spending habits, and purchasing needs is essential.
Your first credit card application and overview should spell everything out, from due dates to late fees. It’s worth checking for these common red flags before signing on the dotted line — even if that means getting out the magnifying glass to read the fine print.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 6.97% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.30% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.47% – 6.30%1||Undergrad & Graduate|
|2.51% – 8.09%4||Undergrad & Graduate|
|3.02% – 6.44%2||Undergrad & Graduate|
|2.69% – 7.21%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|