There are so many competing offers out there that applying for a credit card can seem a veritable nightmare. Trying to read the fine print on your applications can make you feel like you’re going blind, and understanding the financial jargon can require its own dictionary. Thankfully, there are a few key things to look for when applying for a credit card.
The APR on a credit card is the Annual Percentage Rate. This represents the interest on the card, as expressed as if taken every twelve months. A fraction of this rate is applied to your statement each month, and added to the balance on the card. The ideal credit card will have a low APR, because this keeps the cost of the card itself low.
Variable or Fixed Interest
Many cards will offer a low “introductory” interest rate that goes up after a few months. This variation depends on your credit and on how well you tend to your card. Fixed interest rates may be higher, but many prefer them for the security that they will not go up.
An annual fee is a set amount added to your balance in addition to any interest. It can be paid once a year, or in monthly increments, but is independent of the balance on the card. Most cards no longer have annual fees, with the exception of some high-limit cards or cards with many rewards.
Secured or Unsecured
Most credit cards are unsecured. This means that no money is due at the time the card is issued. Secured cards require a deposit when the card is issued, and this deposit is held by the creditor. The money is untouched, unless payments are missed on the card. Secured cards are usually taken by people trying to repair their credit.
National credit bureaus keep track of everyone’s credit histories. Years of financial history are scaled into a credit score, most commonly on the FICO scale. This score between 300 and 850 is used to determine whether someone has “good credit” (over 720) or “bad credit” (under 600). You can request a copy of your own credit report from any credit reporting agency.
Many credit card companies offer rewards for your business. These can take the form of airline miles, cash back, or discounts at specific stores. These rewards are very enticing, but should not be the only factor considered when applying for credit cards.
With these factors explained, you can start looking for a credit card. Most credit card companies have applications online, and if you have good credit you can get approved instantly. Make sure you read all of what you’re agreeing to, and pick the card that’s right for you.
If you need a little extra help with understanding your credit card, we’re here to help. Learn about the added local benefits of becoming a credit union member when you visit Riegelwood Credit Union.