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What to Consider When Choosing a Credit Card

TopCreditCards

When the financial crisis of 2008 consumed the American financial system and brought credit markets to a standstill, it also destroyed or reduced the savings and income of a large part of the middle class. In the ensuing years, the stock market has rebounded, and many people who had lost significant sums of money have been able to recoup their losses. Others have recovered some funds through financial settlements paid by investment firms who were found liable for the calamity.

For many, this has enabled them to start to decrease existing debt, which was used as temporary bridge financing to stay afloat during the rough years. As a result, it's a great time to examine options for new credit cards, which might offer added value to consumers now that disposable incomes are rising again. Here are the things to consider if you're in the market for a new credit card:

Intended Usage

First and foremost, it's vital to figure out exactly how the new credit card will be used. Doing so will help to determine the features to look for in a new card. Answer these simple questions:

  • Will the account be paid in full each month or carry a balance?
  • Will it be used for occasional purchases or for everyday spending?
  • Do you have a balance to transfer from another card?

If there won't be a balance, then the interest rate becomes far less important, and it's more important to look for a card with lower fees. If the card will be heavily used, then it's a good idea to choose a card with features like cashback rewards or spendable points for airlines or online shopping. If there will be a balance transfer, look out for cards that impose fees when you do so. Using this information, you can search for the top credit cards by category, which will get you started in the right direction.

Check Your Credit

Once you've figured out what features you will need in your new credit card, the next thing to do is to check your credit. Doing so will make it easier to narrow down which cards are most likely to approve your application. If you've never checked your credit before, you should know that you are entitled to a yearly credit report from the three major reporting companies, free of charge. Simply visit the Federal Trade Commission's website for details and instructions.

Be aware that most credit card issuers expect you to have a credit score that falls in the good to excellent range in order to open an account. This isn't the only factor, though. If you have a high score, but a limited credit history, many issuers won't approve your application. If you fall into this category, you may need an introductory credit card or one that is secured by a cash deposit in order to build a positive history.

Secure an Appropriate Credit Limit

This is a factor that many consumers don't consider when opening a new credit account. It is important to make sure that your new account has a limit that's high enough that you won't be likely to exceed 30% usage at any given time. While it may seem counter-intuitive to leave 70% of available credit unused, your credit score will suffer if you don't.

Bear in mind that the credit agencies consider all of your open credit accounts when calculating utilization. This means that you will need to figure out your maximum potential usage across all accounts to stay under 30%. Failure to do this may lead to an interest rate hike on your card due to the resulting drop in your credit score.

Take Your Time, Choose Wisely

There's obviously no shortage of credit card offers available at any given time, so planning far enough ahead that you will have time to think it over is essential. After all, choosing the wrong card might tie you to a rate or features that you don't like for an extended amount of time. It's also good to know that the intense competition between issuers practically guarantees that you will find the perfect card for your situation if you look hard enough. Whichever card you choose, use it wisely and make sure never to get in over your head.


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