3 Key Things to Look for When Choosing a Credit Card

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Wise Bread Picks

• Travel Rewards Credit Cards
• Cash Back Credit Cards
• 0% Balance Transfer Credit Cards

When used correctly, a credit card can be a trusted financial tool. The right credit card provides you with rewards and perks, and doesn’t penalize you overmuch when you carry a balance or make a mistake.

Because there are so many credit card options available to you, it can seem overwhelming to compare every detail of each card. But you don’t have to spend hours looking for the best credit card for you. A quick comparison will suffice — as long as you know the three key things to look for. (See also: Consumer Reports Picks the Top Three Credit Cards for Your Needs)

1. Rewards Should Match Your Shopping Habits

A good rewards credit card provides you with bonuses. When used correctly, a rewards card can earn you money. However, you need to choose a card that matches your shopping habits.

The first thing to look for is a rewards card that provides you with something that you will actually use. If you travel a lot, a travel rewards card, offering you bonus points for airfare purchases and hotel stays, can be just right for your situation.

If you don’t drive a lot, even the best gas rewards card won’t do you much good. Maybe you would benefit more from a credit card that rewards you for buying groceries, or one that provides you the chance to earn extra rewards for dining out.

Before you start looking at credit cards, consider what you want to accomplish with your credit card, whether it’s earning free stuff or paying down debt with the help of a balance transfer. Think about your lifestyle, and choose a card that reflects your priorities and interests.

If you don’t want to limit yourself to certain rewards, there are a number of good cash back credit cards that can help you meet your goals. If you just want to earn consistent rewards for your regular purchases and only want to worry about one card, it’s hard to beat the value of a cash back credit card.

2. Interest Rate and Fees Should Be Reasonable

Once you figure out what you want your credit card to help you accomplish, look at the interest rate associated with the card, as well as the fees charged. Fees and interest can destroy the value of your rewards, offsetting the progress you have made with them.

Interest Rates

Your interest rate will depend largely on your credit rating. The higher your credit score, the lower your interest rate. Someone with excellent credit can expect to see interest rates as low as 10.79% to 13.99%. If your credit isn’t as good, you will probably pay more, usually in the 15.99% to 19.99% range. Those with poor credit, if they are approved, may pay 22.99% or more.

Fees

If you pay off your credit card balance each month, the interest rate isn’t such a big deal because you don’t have to worry about interest charges. You can work on improving your credit, and then ask your credit card issuer to lower your interest rate later.

Each credit card charges different fees. You don’t have to read through all the terms and conditions to locate the main fees charged by each card, though. Most credit card offers come with the most common fees prominently listed in the marketing materials. Some of the fees you should compare include:

• Annual fee: There are many rewards cards that don’t charge annual fees. However, some of the premium cards, if you use them a lot, can be worth the annual fee. It’s fairly common to pay between $50 and $150 for rewards cards. Some premium cards charge as much as $400. Make sure you review the rewards program to ensure that you will earn enough to offset the fees.
   
• Balance transfer: If you are planning to transfer a balance, this fee is a very important consideration. Most cards charge between 3% and 5% of the amount you transfer. Try to find a card with a lower fee in order to reduce what you pay.
   
• Cash advance: Most cards charge between 2% and 4% of the amount you withdraw. There might be a minimum, though, of $10 or $15.
   
• Late and over-the-limit fees: Pay attention to these fees, which average around $35 per incident. If you pay late, or go over your credit limit, it can really start to add up.

You can avoid most of these charges as long as you are responsible with your credit cards and avoid cards with steep annual fees.

3. Terms Should Be Easy to Understand

You don’t need to get caught up in the nitty-gritty of the credit card terms, but you do want to pay attention to some key terms. Once again, most of these terms are fairly easy to find in the marketing literature that you receive with credit card offers.

• If your credit card is being used for a 0% APR balance transfer, find out when the introductory period ends. The longer the period, the better off you’ll be. Realize, too, that sometimes the intro period for purchases is different from the balance transfer period. Check these options carefully.
   
• Double-check the restrictions related to your rewards. There might be expirations, as well as limits on what you can earn. A generous rewards program might have a cap on what you can earn. Pay attention to these items to ensure that you are getting the most for your rewards.
   
• Check minimum spending requirements. Some rewards programs, like Discover, require that you spend $3,000 before you can access the highest rewards level. Make sure you understand the minimums, and blackouts (especially for travel rewards cards).

Choosing the right credit card for you doesn’t have to be a complicated endeavor. Take a few minutes to compare three or four different credit card rewards programs and determine which will benefit you the most.