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.
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