6 Considerations to Make Before Applying for a Credit CardJune 10, 2011 - 6:33 pm
Recklessly applying for a plastic is a sure-fire way to guarantee you will end up with a card you are not happy with and one that ends up costing you more than you can afford to pay. Applying should not be a contest to see which company will approve you first. It is serious business and once you sign the agreement the terms and conditions are now your legal and financial obligation.
There are specific things you should be considering when applying for credit cards, regardless of whether it is your very first card or if you have other accounts open. The credit industry has changed greatly in the last few years so what once worked in your decision process may no longer be effective in helping you find a new card.
Here are 6 specific issues you need to consider before applying for your next card:
Annual Percentage Rate (APR)
This is one of the most important aspects of comparing credit card offers and can be one of the trickiest. This is the percentage of interest you will pay for all of your purchases on the card. However, the APR on most card changes based on the transaction you make. For instance, you’ll likely pay a higher APR when taking cash advances than if you were making purchases. Also, many cards offer introductory APRs for a limited time that seem attractive but the regular APR is often significantly higher after the promotional period ends.
Fees and Penalties
Even those with the best track record of paying bills may slip up from time to time. Late payments or missed payments will trigger late fees and penalties that can be rather high. If you are not expected these fees when you make a mistake or go through a financial hardship, a card that once looked good on paper may be totally unaffordable once fees and penalties are assessed.
Good credit typically affords higher credit limits but it depends on the card. Part of your comparison shopping should involve finding cards offering credit limits that suit your needs. Too high of a credit limit can provide temptations for spending you can’t resist. Too low of a credit limit and you may not have the spending power you need, making the card rather useless.
Grace periods on credit cards are the time you have to make your credit card balance pay off in full before accruing interest charges. Most credit cards offer a 25 day grace period but some card providers offer a lesser time period and without knowing the grace period of the cards you carry, you can easily accrue interest charges you were not expecting.
If you are looking for a card that will offer more than just purchasing power, it is important to check out the incentives being offered and how they work to ensure they will work with your lifestyle. Some credit card rewards are not relevant to everyone’s life. If you don’t travel, airline rewards won’t mean much. Cash back cards typically are relevant for everyone but you need to understand how much cash back you can earn and what you have to do to get the cash.
Annual Membership Fees
More and more credit card companies are charging annual fees to make profits. If you have less than perfect credit, you likely will only find card approval for cards with annual fees. Some fees are much higher than others and if you don’t know what to expect, you’ll be paying more money than you can afford or had anticipated.