Choosing a Credit Card: 6 Important Factors to Consider

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Credit cards today allow consumers to have higher spending power than their income. For that reason, most business owners and non-business owners already choose to have multiple credit cards. Those who consider applying for them are because they offer a great and easy way to build your credit score.

However, while it can be tempting to want to sign up for every card we are offered, it is important to consider some essential factors before opting for any specific credit card. So apart from being financially ready to take on the responsibility of a credit card, what other things should you consider?

Here are six important factors to bring to the table when looking to get a credit card so you don’t end up with excess credit card debt.

Factors to Consider Before Getting a Credit Card

1. Consider Your Spending Habits

This should be the first factor to consider when choosing a credit card. You should know why you are getting the card in the first place. This will help you focus on certain features and take them as a priority.

For instance, you might not need a high limit card if you only want to be using the card to pay monthly utility bills conveniently. At the same time, if you intend to use the card as a go-to-payment method, a card with a high credit limit and nice reward programs will be best for you.

So, determine why you need the card, your spending habit, and that will help you decide which credit card is right for you.

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2. What’s the Interest Rate?

Every credit card has an interest rate attached to it. The higher the interest rate, the more it will cost you if you carry a balance if you choose a credit card like that. So be careful to consider the interest rate of the credit card before going for it. While many cards will lure you with a zero percent introductory interest rate, be sure to know what the interest rate will look like after the promotional period ends.

Although a zero percent interest rate might look like a great deal at the time, it can bring a great debt on you if you fail to pay off your balance during the promotional period. So, shop around and compare credit cards to know which interest rate is perfect for you. That will definitely save you money in the long run.

3. What’s the Credit Limit?

The credit limit is another important factor you should consider when choosing a credit card. Credit limit refers to the amount of money you can borrow on a credit card. This usually depends on your credit history too. Being on time with your debt payments will give you the chance to get a high credit limit.

However, while you may desire a credit card with at least a bit of wiggle room, you definitely also don’t want to put yourself in trouble. A high limit card can put a dent on your credit score if you are always close to the limit before you clear your balance.

So, if you are just starting out with credit, you may want to go for a low-limit card. With that, you can gradually start building your credit score.

4. Does It Offer Rewards?

When choosing a credit card, an additional benefit they may offer are reward points. You can get all sorts of benefits and bonuses on your points. This could range from free groceries at your favorite grocery store to bonus points in the airline travel and hotel space. If you desire to enjoy great rewards on your card, you will need to choose a card that offers rewards that fit the way you do your shopping.

Are you the traveling type? A card with airline travel bonus points will make sense. And if you are not the type that spends much time behind the wheel, you might not need a gas reward card. However, even though rewards can be a great addition when you choose a card that offers them, rewards shouldn’t be the sole reason you choose a new card. You should also consider other factors.

5. What’s the Annual Fee on the Card?

Some credit card issuers will require you to pay an annual fee for possessing a credit card. This fee can run from a couple of dollars to hundreds. At the same time, some credit cards don’t come with an annual fee. But, just because a credit card demands no annual fee doesn’t make it perfect to choose. Sometimes, you need to analyze annual fees much more closely.

Instead of searching everywhere for a card that offers zero annual fees, try to see what you will be getting in return for the annual fee demanded. For instance, some issuers with annual fees offer amazing perks and great rewards as part of their package. So, check if the annual fee is worth it before opting for the card.

6. What Are the Penalties?

Annual fees and service charges are not the only ways credit card issuers make money off you. There are also penalty charges in case you exceed your credit limit or pay your credit card bill late. They may decide to raise your interest rates as a penalty when you pay your credit card bill late.

So, when choosing a credit card, ensure you consider their penalties. While it is okay to think you won’t ever break the rules, it is best to play safe and know what the penalties look like in case such a scenario happens. The goal is to choose a credit card with the lowest penalties. So, shop to compare penalties charged by different card issuers.

However, make sure you are bringing this into an agreement with other factors such as low credit limit, high interest rate, and high annual fee.

Bottom Line

Choosing a suitable credit card goes beyond just the kind of rewards the card issue offers. It is important to consider each of the factors mentioned above and see a way to strike a balance between them. Compare packages, and prioritize the factors that are more relevant to you.