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Home >> Manage Your Money >> Personal Finance
Selecting the Best Credit Card
I get lots of credit card offers. How do I select a credit card that is good for me? |
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 As you receive these offers, draw a table on a piece of paper so you can compare the features of each, side by side. Focus on these key components.
Annual Percentage Rate This is the APR you hear so much about. It represents your cost of credit on a yearly basis. Lower is better, but don't be taken in by what is known as a teaser rate. This is a rate that is initially low, but will increase. Focus on what that rate will be when you are using and paying on the card.
Grace Period There is generally a time period between when you make a charge against your card, and when interest begins to accrue on that charge. If you are able to make a charge and pay that amount in full on the next bill, without any interest being owed, you had the free use of their money. That is what you want. Some grace periods may be longer, most will be shorter. Consider how you intend on using your credit card and seek the longest grace period available.
Annual Fees While some cards have no annual fees, others may charge you $20 to $120 or more. That is a real cost. Lower is better, none is best.
Other Fees and Charges Are there other fees you may have to pay such as cash advance fees, over limit fees, late charges or a monthly fee just to have the card? While you won't plan on exceeding your limit or paying late, these things can happen. Read the disclosures in the offers.
Computing the balance, subject to the finance charges There are different ways to compute the balance which will be subject to the finance charge. These are disclosed according to banking Regulation Z.
- Average Daily Balance This method is the commonly used and it credits your account from the day payment is received by the credit card company. This balance is figured by adding the outstanding balance for each day in the billing cycle, and then dividing by the number of days in the billing cycle.
- Two-cycle Average Daily Balance This is probably the most expensive to you if you do not pay the balance in full each month. This balance is the sum of the average daily balances for two billing cycles. The first balance is for the current billing cycle, and is figured by adding the outstanding balance for each day in the billing cycle, and then dividing by the number of days in the billing cycle. The second balance is for the preceding billing cycle.
- Adjusted Balance This is the best for you as it is least expensive. This balance is figured by deducting payments and credits made during the billing cycle from the outstanding balance at the beginning of the billing cycle.
- Previous Balance. This balance is the outstanding balance at the beginning of the billing cycle.
What is not in the disclosure is the reputation of the credit card company. You may want to research the company online and with your Better Business Bureau to see if there have been any complaints.
Published on BankingQuestions.com 7/28/06
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