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The Complete Guide to Choosing a Credit Card

The Complete Guide to Choosing a Credit Card

There are literally hundreds of credit cards to choose from and deciding which card to apply for can be quite difficult. There are several different varieties of credit cards with each offering rewards, cash back etc. You may not know which card is best for you and your current situation. Rest assured this guide will educate you on how to choose the right credit card for you and how to get the most out of your credit card.

Things Every one Should Know About Credit Cards

There are all kinds of terms, restrictions and limits involved with credit cards. Many people are not aware exactly how a credit card functions, or how the interest is calculated etc. Below is a guide that  will educate you on everything you need to know about credit cards.

1. Card Companies will Often Price Match

Many cards come with a hidden feature that many people do not take advantage of. This feature is price matching. With some cards if you buy a product with your card and find the same product at lower price somewhere else they will refund you the difference.

Credit card companies that are known to do this are Discover, Citi, and MasterCard. It can be a difficult process as often you have to send in a picture of your credit card statement along with the purchase clearly marked on it, as well as the sales receipt and proof of the ad of the lower priced product along with the date. This can be a lot to do however it can be well worth it especially if the price difference is a wide margin. Furthermore, there can be a lot of products excluded from this benefit such as jewellery, travel purchases, vehicles and clearance items.

Credit card companies know they are in a competitive market and therefore will compete with each other based on offers, benefits and interest rates. You can take advantage of this if you are happy with your card but see a similar card with a better benefit or interest rate.

For example if you have a cash back card with a good program, you can call and say that you found another card that has the same reward program but  they can offer me a lower interest rate. Often they will match or sometimes beat the competitors interest rate.The key is to be polite when you negotiate with the company and sound very informed and educated. This technique is especially useful if you have been a long time customer and you make your payments regularly.

2. Know the Card A.P.R

This is, arguably, the most important feature on any credit card as it will determine how much interest you pay each month should you run a balance and not pay it off fully.

What is A.P.R.?

This stands for annual percentage rate. Simply put it is the amount the credit card balance will cost you over a one year period. Not only does this include interest, but all the fees are added to calculate the A.P.R. After the introductory period A.P.R. most credit cards used a fixed A.P.R. that does not change unless you fail to make a payment on time. Once you make a late payment the credit card company can increase your A.P.R.

We recommend you check our our Credit Card Fees Explained article which gives a breakdown in detail of all the various (sneaky) credit card fees you may get hit with.

3. Know the Credit Card Grace Period

You may see a grace period listing on your bill and not know what it means. The grace period is the amount of time you have to pay your bill before before you will be charged interest. It is required by law that the grace period must have a duration of at least 21 days. However the average grace period is usually 25 days.The grace period does not include foreign transaction fees or cash advance fees, you are charged interest on those fees immediately.

How to avoid interest with the grace period

Must consumers don’t know how to use the grace period to their benefit. You should know that paying your new balance off completely creates a no interest period on new purchases during the current billing cycle. Simply paying your balance in full within the grace period will avoid the interest fees, but this isn’t always easy to do.

If you fall out of grace meaning you didn’t make the payment in full you will be taken out of the grace period. With some cards, it takes two months of paying your bill full to reactivate the grace period.

Know the Card Trailing Interest

Bet you never heard of trailing interest? It does exist and many people get charged with trailing interest every month. It is best defined as the amount of interest that is accrued from the time when the credit card bill was sent and the time the payment of the bill is received. Even if you pay your bill in full, trailing interest could still occur. For example if you bill comes in the mail on September 28th, 3 days after the billing period expires, and you have a balance of $2500 and you pay it off in full, the interest that accumulated in those 3 days it took you to pay the bill will be on your next bill.

How to avoid trailing interest

The simply way to avoid trailing interest is to use online banking to access your bill on the last day of the billing cycle and make a transfer for the full amount then this will eliminate any trailing interest charges on your next bill. It is important for the transfer to be immediate which most online payments currently are.

Know YOUR Credit  Score

Everyone has a credit score and this single number is what determines your credit worthiness that affect anything to do with getting credit — loans, credit cards, mortgages, and so on.

Below is a basic guide of the credit score system:

Below 620:Poor

620-680- Fair

680-720- average/god

720-760- very good

760-850 excellent

Credit score myth

There is a common belief that doing credit checks or requesting a credit report hurts your credit. This is not entirely true.

If you are checking your credit score through a through a service that provides reports to consumers then it has no effect on your score. However if you are consistently applying for loans at financial institutions and having your score run with them then yes it can take a soft hit if you do it several times in a short time period.

Understand Credit Limits and How it Affects Your Card Limit

A credit limit is one of the most important financial tool that you will utilize in your lifetime. A bad credit rating makes it difficult to get auto loans as well as mortgages. Furthermore, when you do get accept for loans and credit cards with bad credit, your interest rates will be through the roof.

Your credit limit basically refers to the credit card company’s analysis of how much credit to give you based on your credit score (the biggest factor), payment history, credit utilization, and type of credit. For some credit types, your income is also a factor. The exact algorithm for determining credit limit is kept secret by card companies, however. At the end of the day, the better your credit score the higher the credit limit on your credit card the card companies will extend to you.

Credit Limits: How to beat the system

It is said by many that using high amounts of your available credit really hurts your credit score. The rule of thumb is said to be to only use 30% of your available credit on your card. This applies to each card individually not as one. So if one card has a limit of $1000 keep it at $300, and if one has a limit of $3000 keep it at $900. This can be hard to do especially when you are running into interest charges every month or only making the minimum payment.

But wait there is way around this rule. Your credit is reported in the form of a snapshot in time. So on the same day every month your credit snapshot is taken. It can work against you if you and create a false impression your carrying a high balance when you are not. For example if your balance is $1500 on a $3000 limit  and you pay it off the day after the snapshot is taken,each month it will appear as if you are carrying a 50% balance.

To get around this find out when the credit snapshot is taken and pay a good portion of the balance before then. For example if your limit is $3000 and your sitting at a $1500 balance, then paying a good $600 dollars even the day before the snapshot is taking will make it appear you are only using the 30% of your limit.

Furthermore, another way around this is to make multiple, smaller payments weekly or bi- weekly. This way your balance will always be a lower amount no matter when the snapshot is taken.

The Types of Credit Cards and How to Choose The Best One

There are different classes of credit cards with each offering something different.

The major types of credit cards are:

  • Low Interest Cards
  • Balance Transfer Cards
  • Cash Back Cards
  • Reward Cards (General, Travel, Gas, Hotel)
  • Student Cards
  • Business Cards

If you want more information about card types, also check out our Types of Credit Cards article which further breaks down card types.

This article will walk you through each class of card and guide you towards choosing the most suitable card.

1. Low Interest Credit Cards

These credit cards offer a lower interest rate then most cards and are accompanied with an introductory offer of 0% interest for the first 12-18 months you have the card. This feature allows you to save on your monthly interest charge for the specified time frame. After the introductory offer the interest rates range from 10.99% to 21.99%. Your interest rate will be determined by your credit score.

Is this card right for me?

When looking at these cards it is important to pay attention to the interest rate after the introductory offer. Also make sure this card has no annual fee.

These cards ease the amount of interest you pay each month and can be very useful in paying down your debt faster. If you are making a large purchase doing so during the introductory offer can save you hundreds of dollars on interest. For example if you purchase $1000 worth of items with your credit card and make $100 payments each month you can pay off the card in 10 months without having to pay a cent of interest.

Furthermore another attractive feature is these cards do not have an annual fee . However if you are interested in earning credits towards rewards such as cash back with your purchases then this is not the card for you. Most low interest credit cards do not come with these additional features.

Here are some of the best low interest credit cards available:

Chase Slate Credit Card

Benefits

  • $0 annual fee
  • 0% introductory APR offer for first 15 months on balance transfers and purchases
  • No penalty APR, making a late payment won’t raise your interest rate
  • Ongoing APR 12.99% to 22.99%

Pros

  • Named best credit card for balance transfers two years in a row
  • no annual fee
  • no balane transfer fee
  • great introductory offer

Cons

  • no rewards or cash back program

The Bottom Line

If you are looking for a card with low interest and do not mind the fact there is no rewards or points program then this is the card for you.

2. Balance Transfer Credit Cards

These cards are similar to low interest credit cards with the purpose of this card being the ability to transfer a balance from a credit card with a high interest rate to a card with a low interest rate. The attractive feature with these cards is they have a introductory a 0% APR balance transfer period. The longer the introductory period the more you will save on interest. These cards allow you to pay off your debts quicker because you will be paying less interest.

Is This Card Right For Me?

If you have racked up a pretty high balance on your current card and are paying a lot unneeded interest each much then switching to a low balance credit card might be in your best interest. If you do this quite simply you will save money on the amount of interest you will pay each month, and it will allow you to pay of your debt quicker. Look for a card with the longest 0% APR introductory period for balance transfers and make sure it has no annual fee. Some great cards that offer all the benefits include:

Bank Americard Credit Card

Benefits

  • long 18 month 0% APR introductory offer on balance transfers
  • no annual fee
  • interest rate of 10.99% to 20.99% after introductory offer

Pros

  • longest 0% ARP introductory offer in the business
  • no annual fee
  • low interest rate
  • easy to use

Cons

  • no rewards or cash back program

The Bottom Line

If you are paying a ton of interest each month and it is far outweighing the benefits of the card make the switch to a balance transfer credit card as you will be doing yourself a favour. If your interest payments are a little high but you are reaping the reward features of the card then it may not be worth switching to a balance transfer card which often do not have any rewards.

3. Cash Back Credit Cards

Cash back credit cards are cards that offer you a percentage of cash rewards for every purchase you make with the card. Many of the cards offer 1% cash back on all purchases with a special rotating category of purchases that can earn you up to 5% cash back on purchases. This revolving category usually lasts 1 month or a full quarter.

Is This Card Right For Me?

If you are an individual who uses their credit card frequently and regularly pay down most of your bill each month then you will benefit from this card over some of the others. The more you use this card the more cash back you will receive which can ad up to a decent amount over time. Here are some great cash back reward cards:

Bank Americard Cash Rewards Credit Card

Benefits

  • 1% cash back on every purchase, 2% at a grocery store, and 3% on gas purchases
  • no annual fee
  • 0% introductory APR on purchases for first 12 month

Pros

  • rewards do not expire
  • no annual fee
  • $100 cash reward bonus after you spend first $500 with the card

Cons

  • cash back rewards are limited, if you use card frequently you may be better suited with a higher cash back rate

The Bottom Line

If you are someone who will use their card frequently then this card is well suited for you, as you will earn a lot of cash back. However if you are going to have a high balance each month then it may not be worthwhile as the amount you spend on interest will outweigh the amount of cash back you receive.

4. Reward Credit Cards

Reward cards are similar to cash back cards where you accumulate rewards based on purchases with the card. The cards do offer cash back however they are more heavily focused  on rewarding points that can be redeemed for products, hotel stays, flights etc. These cards reward you for your personal spending habits.

There are different subtypes of reward credit cards such as general reward cards, travel reward card, retail rewards cards and gas reward cards.

Which Reward Card is Right for Me

You can closely tailor a rewards cards based on your spending habits to help you choose a reward card.

General Reward Card

This card is best suited if you don’t have any specific purchases you plan to make with your credit card. If you plan on using it for some online purchases are occasionally at the mall then go with a general reward card.Most general reward cards do not have an annual fee.

A great general reward card is seen below:

Chase Freedom Card

Benefits

  • 0% intro APR on purchases for 5 months
  • no annual fee
  • earn 1% unlimited cash back on all purchases
  • earn up to 5% cash back on rotating categories

Pros

  • Named best card for cash back by Money Magazine
  • no annual fee
  • earn 5% on rotating categories

Cons

  • can only earn the 5% rate on rotating categories which can be hit or miss

Travel Reward Credit Card

With these cards you earn earn credits and reward points to use towards air miles, flights and hotel stays. Some of these cards are co-branded with a specific hotel or airline. For example if you have a Hilton branded credit card you will earn extra rewards when you use that card to book a room with the Hilton. Also a lot of the rewards will be focused on stays at the Hilton etc. Airline cards reward you for flying and making purchases with that particular airline with that card. An example is the Gold Delta Sky Miles credit card. With this card you can earn 2 miles per dollar spent on purchases with Delta.

Is this card right for me

These cards can be hit or miss depending on your spending habits. If you frequently travel for business then these cards can be very valuable.  However if you travel a lot but don’t plan on using the card frequently then it may not be worthwhile A generic example of a rewards program you may see with these cards are this: ‘for every for every purchase with the card earn 1% rebate of your next stay at our hotel’. You can see the value in this especially if you will use the card frequently. Below is a great hotel rewards card followed by an air miles reward card.

Citi Hilton Honors Visa Signature Card

Benefits

  • earn HH bonus points for every purchase made
  • no annual fee
  • APR ranges from 15.24% to 19.24%

Pros

  • no annual fee
  • can earn up to 6 HHonors bonus for every $1 spent at any participating Hilton hotel

Cons

  • need to have an excellent credit score to be approved for the card

Gold Delta SkyMiles credit card from American Express

Benefits

  • earn 2 miles per dollar spent on purchases with delta
  • earn 30 000 bonus miles after you make $1000 in purchases within first 3 months
  • check your first bag free for every Delta flight

Pros

  • $0 annual fee for first year
  • earn $50 statement credit with Delta purchase
  • offers priority boarding on Delta flights

Cons

  • no introductory offers
  • many terms and restrictions apply

Gas Reward Credit Cards

These credit cards offer cash back, points or rebates awarded when you make a fuel purchase. There are two different variations of gas card. There are general gas cards where you are rewarded when you make purchases at any gas stations .Then there are  co branded gas card which are branded with a specific gas station. For example the BP credit card offers you points every time you purchase fuel at BP with the credit card.

Is this card right for me?

If you frequently travel long distances and consume a lot of fuel then this card can be well suited for you. Frequent commuting, city driving, driving long distances to work etc are all profiles that would be suited for this card. You will accumulate many rewards that will save you a good amount on gas and other everyday purchases.

If you do not travel frequently or very far then this card is not a good fit for you. There is most likely a better card option for you. Here is an example of a gas credit card and its features:

Blue Cash Preferred card from American Express

Benefits

  • earn unlimited 3% cash back on gas anywhere in the U.S.
  • get $150 back after you spend $1000 on purchases in first 3 months
  • APR ranges from 12.99% to 21.99%
  • 0% APR on purchased and balance transfers for first months

Pros

  • 3% unlimited cash back on gas purchases
  • great introductory offer

Cons

  • 75$ annual fee

The Bottom Line

Reward cards are often the best way to go if you have well established credit and use your card frequently. Yes, some may have an annual fee however the rewards and cash back earned often outweigh the annual fee. If your rewards are not more then the annual fee switch to a low interest credit card.

5. Business Credit Cards

Business credit cards are great for both small business and corporate businesses. These cards offer rewards for purchases made for business operations such as office supply stores, business products etc. They also offer rewards made on general purchases such as gas.These cards can offer great reports on yearly or quarterly expenses and provide increased buying power.

How Business Credit Cards are different

  • Interest rates can instantly be raised at any time
  • no limit on late fees
  • there may be a shorter time limit to pay the bill
  • special payment and accounting options

Is this card right for me?

If you have a small business, applying for a business credit card can be a great asset to your business. It will provide you with increased buying power especially when purchasing business related items. Anytime you have a business expense it is wise to use your business card.

On the contrary, if you are self employed or a very small business with low business expenses then this card may not be right for you. For example if you are a private  counsellor you do not have many business related expenses and the little expenses you have would be best used by your personal credit card.

You need to have an excellent credit score to qualify for a business credit card. The company will look at your personal credit history and it will have an impact on qualifying for the business card. Furthermore, any bad credit you may build up on your business card could also affect your personal credit.  Business credit cards are sometimes accompanied with annual fees however the have tend to have a favourable interest rate.Also many business cards include an introductory offer although it is usually a shorter time period then regular credit cards. Below is a popular business credit card:

Bank Of America Cash Rewards for Business Master Card

Benefits

  • earn 3% cash back on purchases with office supply stores and fuel
  • no annual fee
  • 0% introductory APR for 9 billing cycles
  • variable APR after intro period of 11.24% to 21.24%

Pros

  • no annual fee
  • no limit to the cash back you can earn

Cons

  • intro period is only 9 billing cycles

The Bottom Line

If you have a well established business big or small you will be doing yourself a favour with a business credit card. The specialized reports offered make things a lot easier from an accounting point of view.

6. Student Credit Cards

Student credit cards are designed to help establish a credit rating for students breaking into the financial world. The credit limit on a student credit card starts low ranging from as low as $250 to $1000. There is no annual fee associated with these cards. These cards sometimes come with some minor benefits as well. It is important to pay all or most of the balance each month to start establishing a good credit rating.

Is this card right for me?

If you are a student looking to start establishing a credit then this is the card for you. Be sure to make your payments every month. If you do not have a big income then simply use the card for minor purchases such as gas then pay it off by the end of the month. After doing that for 6 months you should start to see your credit score increase and you will be offered a credit limit increase. Below is an example of a popular student credit card:

Discover IT for Students

Benefits:

  • no foreign transaction fee, no annual fee, no over limit fee
  • 0% APR on purchases for first 6 months
  • can earn up to 5% cash back on revolving categories

Pros

  • no fees
  • earn cash back each year G.P.A. is 3 or higher
  • good cash back offers

Cons

  • no drawbacks to this card

The Bottom Line

If you are a student you definitely need to get a student credit card before any other card. This card will help establish a credit rating so you can advance to better suited credit cards in the future such as reward cards etc.

The Bottom Line

Using everything you learned in this guide will definitely help you in getting the most out of your credit card.Become aware of what all the terminology means and apply your knowledge when dealing with the card and the card companies. Always pay your bills within the grace period, don’t use to much of your available credit and use your card frequently to get the most out of the rewards programs. Following all these instructions will ensure you pay lower fees and interest rates.

About The Author

Ben Todd

Ben was a seriously broke graduate student with bad credit who after finding himself rejected for any sort of credit card or loan for most of his adult life, finally decided to get his financial life in order. ‘

He spent several years reading as many financial advice books and blogs as he could.

And suprisingly, Ben found he actually LIKED the topic of personal finance; after fixing his own finances, starting his own successful work at home website business, and using his earnings to get out of debt, created echeck.org to help others do likewise!

1 Comment

  1. Laura Glaude

    Can you tell me your honest opinion on BP gas card? I’m looking forward to taking it.

    Reply

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