When you are approved for a credit card, you are being given permission to obtain goods or services before payment, based on the trust that payment will be made to the credit grantor in the future. Believe it or not, you don’t have to have perfect credit in order to be approved for a credit card. The truth is, however, that a better credit history will be rewarded with lower interest rates, while those with troubled credit may have to pay higher rates and additional fees in exchange for credit.
With so many lenders anxious to offer credit, it can be overwhelming to know which one is right for you. Instead of applying for multiple credit cards at one time, which will lower your credit score significantly, it’s a good idea to narrow your choices down to those that fit your needs and, more importantly, your budget.
One of the most important factors to consider when choosing a credit card is the APR, also known as Annual Percentage Rate. Is it fixed or variable? A fixed rate is one that will not change from month to month, while a variable rate is one without a consistent pattern. In other words, a variable interest rate can rise or fall from one month to the next, while a fixed rate does not.
Review the credit card agreement for miscellaneous fees, which may include an annual fee, monthly account maintenance fee, processing fee, one-time activation fee, etc. In addition, pay close attention to any fees that the lender will assess for a returned check, late payment and/or whether or not the credit grantor participates in ‘Universal Default’, which is a practice that allows one credit grantor to increase your interest rates solely because you default on any other debt with any other creditor.
When it comes to choosing the right credit card, another important consideration lies within the credit grantor’s policy on unauthorized charges. For instance, are you responsible for payment on an amount while it is in dispute? The majority of credit cards require notification in writing of an unauthorized charge, at which time the amounts in question will be investigated without any financial responsibility to you until the issue is resolved.
One final thing to consider when choosing the right credit card is, believe it or not, the credit limit. Depending on the amount of fees that a credit card issuer may charge upfront, you may or may not have much available credit left upon activating the card. For instance, if a credit card issuer were to grant you an account with a $250.00 credit limit, which was subject to a $99.00 one-time activation fee, a $69.00 annual fee and a monthly account maintenance fee of $5.00, you would have only $77.00 of available credit upon receiving the card. You can learn more about these types of fees, along with minimum credit lines, on the cardholder’s agreement or credit grantor’s website.
The information contained in this article is designed for reference purposes only. It should not be used as, in place of or in conjunction with professional financial advice relating to credit card selection and/or use. For additional information, consult a financial planner or your cardholder agreement.
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