It’s exciting to receive a new credit card in the mail, and to use it while shopping online or at the store when you make your purchase. But with so many credit cards on the market, deciding which credit card is right for you can be an overwhelming process.
To ensure that you apply for the right card based on your lifestyle, credit profile and spending habits, follow this step-by-step checklist, which is broken down into the four main phases of the credit card selection process.
RESEARCH AND PREPARATION
1. Check your credit reports and credit scores. Pull a copy of your credit report and scores from each of the three national credit reporting agencies. Carefully comb through your credit reports to make sure the payment history, balance amount and account age are correct for each of your credit lines. You’ll also want to double check that your personal information—such as your name and address—is accurate, and that all negative credit information has fallen off your credit reports after the appropriate amount of time has elapsed. Determine if there are steps you could take to improve your scores, such as paying off or paying down debts, lowering your credit utilization, etc. And finally, remember that errors on your credit reports could translate to lower credit scores, which may mean you’ll dish out more in both interest and fees on credit card offers. If you find errors that could negatively impact your scores, file a dispute.
2. Determine whether an unsecured or secured card fits your credit profile. If you have a good credit scores, you’ll likely qualify for an unsecured credit card—a traditional credit card offered by a bank or other financial institution. If you are on the lower end of the credit score spectrum, you may only be eligible for a secured credit card, which requires a security deposit as collateral.
3. Evaluate your charging habits. Think about how you plan to use your new card (your current credit card behavior may be a good indicator). Do you plan to pay your bill in full every month, or will you only make the minimum payment and carry a balance? Are you going to use plastic for all your purchases or only big-ticket items?
4. Research credit cards offers. There are a number of online comparison websites, such as Bankrate.com, where you can search for credit cards based on your credit scores, the type of card you want and card issuer.
NAVIGATING THE CREDIT CARD SEARCH
5. Determine the introductory interest rate—and how long it’s offered. Some credit cards will offer low or even zero percent introductory interest rates to attract consumers. A low introductory rate is especially important if you plan to transfer an existing balance to your new card in order to save on interest and get out from under credit card debt. But don’t forget to consider how long the introductory interest rate applies. Some offers expire after six months, while others last up to 12 or 18 months.
6. Find the lowest annual percentage rate (APR). If you plan to carry a balance on your new card, you’ll want to lock in a low interest rate or APR, which is the price you pay for borrowing money, expressed as a yearly rate.
7. Look up the length of the grace period. The grace period is the number of days you have to pay your bill in full before you are charged interest on the balance.
8. Calculate fees and penalties—they can add up. Even if you snag a low interest rate, your credit card could be costly if you are hit with excessive fees. Some cards charge an annual fee just for having the card, for example, as well as fees for balance transfers, cash advances and international transactions. You’ll also likely be hit with fees for paying late, exceeding your credit limit and making a payment by phone, and some cards even charge for processing your application.
EVALUATING CREDIT CARD FEATURES
9. Research reward opportunities. If you plan to pay your credit card bill in full every month, you may want to consider a credit card that rewards you for your spending. While some cards give you cash back based on how much you charge, others offer airline miles, rebates (such as for gas or groceries), and points that can be redeemed for various rewards options. Make sure to look for expiration dates on points or miles, as well as limits on how much you can earn or spend.
10. Determine which rewards offer the most value. If you are a frequent flyer, you may benefit from a credit card that allows you to earn travel miles, but if you primarily use your card at the supermarket, a rebate on groceries might be more valuable. If your rewards card comes with an annual fee, make sure the rewards outweigh the cost of the card.
11. Evaluate perks and benefits. In addition to providing you with a method of payment, many credit cards come with perks and benefits, such as roadside assistance, travel booking, purchase protection, insurance and even access to exclusive airport clubs.
12. Consider customer service. In case you run into a problem—you are traveling overseas and your credit card continues to be declined, for example—make sure the card issuer provides a 24-hour toll-free phone number so you can access customer service around the clock.
13. Compare multiple cards. Don’t just settle for the first card that catches your eye. Once you’ve researched the interest rate and terms for one card, do the same for at least three or four others to ensure you’re applying for the best deal.
APPLYING AND USING
14. Apply for your new card. Fill out your application online, by phone or in person by visiting one of the card issuer’s branches.
15. Start using your card—wisely. While getting a new credit card can be exciting, remember to practice creditworthy behavior that will reflect positively on both your credit history and credit scores. Regularly make on-time payments, for example, and if you have trouble remembering to pay your bill, set a calendar reminder or sign up for automatic payments.
16. Take special note of your credit limit. When you are approved for your credit card, make a note of your credit limit. Even though you can technically borrow up to the amount of your credit limit, avoid carrying a balance of more than 30 percent of that limit. If you have a high debt-to-credit ratio, lenders may view you less favorably when you apply for a loan or your next credit card.
17. Scan your statements. When you start using your card, thoroughly scan each statement to look for incorrect charges and unexpected fees. If you spot an unfamiliar charge or billing error, contact your creditor.
18. Increase your credit limit. Once you’ve demonstrated you can use your credit card responsibly, contact your creditor to see if they will increase your credit limit.