Credit card offers are everywhere. It seems like you can’t check your mailbox at home without having to sift through two or three pre-approved credit card offers every day. While some of these offers may be valuable, it’s important to do some research on the credit cards that you are considering applying for before shooting out a bunch of applications. This is because applying for too many credit cards in a short period of time has the potential to negatively affect your credit score.
Here are five useful tips to keep in mind when choosing a new credit card:
1. Shop within your credit score
One of the easiest ways to protect your credit score from a barrage of credit inquiries that can harm it is to determine what your credit score is so that you can then apply for credit cards that you will most likely be approved for. There is no reason to apply for a credit card that requires a much better credit score than you currently have because you probably won’t get approved. The credit check that the credit card company performs may harm your credit score.
2. Do you carry a balance?
It’s very important when dealing with credit cards to understand your spending and balance habits. If you are constantly carrying a balance on your credit card, you might want to look into credit cards that offer a low or 0% introductory balance transfer rate so that you can consolidate that debt. Otherwise, if you carry a balance, but aren’t interested in balance transfers, you should look into credit cards that offer a low annual interest rate so you’re not getting gouged on monthly credit card interest payments.
3. Understand your spending habits to earn rewards
One of the most valuable aspects of owning and using a credit card is the potential you have to earn rewards on your purchases. There are many different types of credit card rewards including cash back cards that let you earn a percentage of cash back on your purchases, and reward points cards that let you earn reward points that are redeemable on various reward networks for things like free flights, hotel rooms, consumer electronics, and more. Many credit cards offer different amounts of cash back or rewards points depending on what type of purchase you are making. For example, if you spend a lot of money on gas, you may want to look into a cash rebate on gas credit card. On the other hand, if you spend most of your money on travel arrangements, there are credit cards that offer big rewards for travel purchases.
4. Be wary of annual fees
Many credit cards charge the cardholder an annual fee for every year that they own the card. While this isn’t always a big deal, many people make the mistake of applying for a credit card without reading the fine print, and are subsequently surprised when they see a couple hundred dollar annual fee on their credit card statement. Many credit cards waive the annual fee, however, so you won’t be required to pay up until the second year that you own the card.
5. Take into account all the savings of a given card
When making your final decision about which credit card to apply for, you should take into account all the possible savings and fees associated with the card so that you can determine the total cost of owning that card. Although this approach may require a bit more work, you will have a much better understanding of which cards will benefit you the most. You should take into account the annual fee, the card’s interest rate, and your spending habits in order to calculate the card’s total cost of ownership.
Logan Abbott is the editor of MyRatePlan.com, a leading consumer information site for credit cards, mobile phones, banking, insurance, and more. He has over 10 years of experience in the personal finance arena.
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Category: Money Basics