With many major financial institutions facing major losses, they are trying to cut corners and raise revenue with in every way that they can, including with credit cards. Many consumers are getting notices that their interest rate is increasing, others are finding themselves with increased annual fees, and others are finding themselves with almost worthless rewards programs. If your credit card company has unexpectedly raised your interest rates in the last few months, maybe it’s time to give them the boot. When shopping for your next credit card, you should know what the key factors are in determining which card is the best for you.
Here’s what to look for when you applying for a new credit card:
Interest Rate – One of the most important factors is the interest rate that you will pay on your card. Certainly you want to find a card that will have the lowest interest rate if you carry a balance on your card from month to month. If you carry a balance, having a lower interest rate is much more important than the rewards that you would get on the card. If you don’t carry a balance, the interest rate isn’t really ever an issue because you never pay any interest and then you can focus on the rewards.
Rewards – There are three types of reward programs, cash back, points and then airline miles. Usually you almost always want to go with a cash-back card because most airline miles have become very difficult to redeem and with points systems, usually you don’t get anything better than you would have from the cash back, you just have fewer choices.
Payment Date -This isn’t a terribly big deal if you manage your money well and aren’t living paycheck to paycheck, but if you don’t have much of anything in savings, you’ll want to make sure there’s plenty of time between when your paycheck clears and when your deadline is for the payment.
Fees – Does the credit card have an annual fee? Are there any other gotcha fees that you need to be aware of? It almost never makes sense to pay an annual fee to use a credit card. Another fee to watch out for is the currency conversion fee (if you ever plan on traveling overseas). Most credit cards will charge you a 2-3% junk fee for using your money overseas or in another currency, so watch out for that.
Spending Limit – If you have a credit card with a higher limit, this may benefit your credit score. Part of Fair Isaac’s formula to calculate your credit score is the percentage of your total available debt that you make use of. If you make use of a lower percentage of your total available debt, your credits score will increase. If you averaged $2,000 on a $4,000 credit limit, you would be at a 50% debt utilization ratio, but if you had a $10,000 limit, you would only be at a 20% debt utilization ratio, which would be much better for your credit cards. This doesn’t mean that you should rack up debt to whatever your limit is though!
Make sure to take these things into consideration when you apply for credit cards. If you plan on buying a house in the next few months, you should probably avoid applying for a new credit card because doing so will temporarily lower your credit score, but all of that loss is recovered after 6 months.