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Step 1
Use the steps below to evaluate your credit card offer and compare it to other offers. You can find many credit card offers on the web including the links on this article to find the credit card that is right for you.
The following steps should be used to evaluate the card offer and determine if they have a truly good offer or just a bait and hook tactic to get your money. -
Step 2
Annual Percentage Rate (APR) for purchases: This is the percentage of your balance that you pay in interest per year. It appears in big type, but you aren't guaranteed this APR. Once you apply and your credit history is analyzed, it may change. If it's an introductory rate, it should also say how long that rate will last.
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Step 3
Other APRs: Cash advances and balance transfers have a different (often higher) APR and usually involve a transaction or balance-transfer fee (around 5%). Look for 0% APR and ask to have the fee waived--43% of issuers will do this if you're a new customer.
When you get a cash advance or transfer a balance and get a low or 0% APR, all your other charges (before and after) still get charged normal interest. The tricky part is that when you make a payment on the credit card, the payment gets applied to the lowest interest rate balance so that your higher interest rate balance remains on the card until your cash advance or balance transfer is completely paid off; during all that time, it's charged at the normal (high) APR.
Example: You have a balance of $1200 at 15% APR. You get a cash advance for $1200 at 0% APR for 12 months. You're going to make payments of $100 per month, paying off that previous $1200 balance--as you pay it off, your interest charges will go down because the balance goes down, so you'll end up paying about $108 in interest. You don't worry about the cash advance because you don't have to pay for that for a whole year, right? Wrong. Your payments will be applied towards the cash advance while you get charged the full 15% APR for the previous balance, which is $180--$72 more than you expected! Plus, if you don't pay off that cash advance in full before a year has passed, you might get slammed with interest charges for the entire year (another $180 or more).
To prevent any surprises, pay off your entire balance on a card before getting a cash advance or balance transfer, and don't charge anything else on the card until that low/no APR balance is completely paid off. Plan to pay it off in full before the promotional APR expires, and you'll have gotten a 0% loan and beaten the credit card company at their own game!
Look for the penalty or default rate. This is what is charged if you pay late or go over your limit and can go over 30%. The terms upon which this rate kicks in varies from offer to offer. Look for a card with forgiving terms, such as allowing one or two late payments before the higher APR takes effect. E.g. "If your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply." -
Step 4
Grace period: This is the amount of time you have to pay your bill in full before you get charged interest on the balance. Most cards have a 20-30 day grace period. If the card doesn't have a grace period, you get charged interest as soon as you charge. And remember that if you don't pay your account balance in full every month, there is no grace period.
Did you know that if you don't pay for a charged amount in full during the grace period, you get charged interest for the entire charge, even if you paid off most of it during the grace period? Let's say you buy a bed for $1,000 on August 1 and that's the only charge on your card. Before your grace period ends, you pay $999, which means you still have $1 of that charge left to pay when your grace period expires. But, you'll get charged interest for the entire $1000 from the day you made the purchase (or from the first day of the billing cycle in which you made the purchase) regardless of the fact that you paid off most of it already, and regardless of when that payment was made. This is a common practice called trailing interest that credit card companies are often criticized for. -
Step 5
Interest on Average daily balance: Your balance is calculated every day, and the interest is charged based on an average of those balances.
With this method, you can actually lower your interest charges by breaking your payments into pieces. Let's say you have a balance of $1000 and you pay it on the last day of the cycle. Your average daily balance will be $1000, so you get charged, say, 13% ($130/12 = $10.80) for having carried that balance for those 30 days. But what if you pay $500 halfway through the cycle, and another $500 on the last day? Your average daily balance will now be $750 (it was $1000 for the first 15 days, $500 for the other 15 days) and your finance charge will be 13% of that, which is $97.50, and $8.13 if you carry the balance for only 30 days, which is 25% lower than if you made the payment in full at the end of the month! -
Step 6
Annual fees: Most airline and cashback reward cards have an annual fee, so make sure that the benefits of using that card outweigh the cost of being a cardmember. You can also ask to have the annual fee waived every year.
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Step 7
In the US, every credit card offer is required to have a standard box, often called "Schumer's Box" after the Congressman responsible for the legislation that requires it, which clearly outlines the terms of the offer in the order presented above.
If in doubt, call customer service and get specific answers. Get the representative's name and identification number, as well, in case they give you the wrong information and you end up getting charged for something they said you wouldn't. You can use your record of this conversation to get those charges dropped.
