When it comes to the most valuable financial tools available, you can’t ignore credit cards. They offer a convenient way to pay for goods and services without the need to have the money in your account.
Suppose you pay your credit card bill in full and on time. In that case, you can minimize the interest that accumulates on what you’ve borrowed, resulting in low or even no extra charges. Also, most credit cards come with rewards and cashback. You can take advantage of this and save a lot of money when you purchase something.
But choosing the right credit card that suits your lifestyle and income can be challenging. There are thousands of credit card offers available, and each has a different set of features.
Before exploring the main factors to consider when choosing a credit card, you should know what credit cards are and what types are available to you.
What is a credit card?
A credit card allows you to borrow money from the bank or other financial institution that issued it up to an authorized credit limit. Some credit cards have an interest rate of up to 16.5% per year on the amount you borrowed. But other credit cards come with 0% interest as long as you repay on time.
One of the reasons people love using a credit card is versatility. You can use it for small, convenience purchases such as groceries and gas or big-ticket items such as appliances or vacations. They are also instrumental when it comes to emergencies.
What are the different types of credit cards?
There are different types of credit cards based on creditworthiness, types of rewards and benefits, etc. But here are some of the most common types of credit cards you will find in the market:
1. Rewards Credit Cards:
Most consumers use Rewards Credit Cards. They offer attractive rewards and incentives such as cashback and points for every dollar you spend. If you shop frequently, these cards can help you save a lot of money.
2. Travel Credit Cards:
Travel credit cards are another popular type of card. They often allow you to earn airline miles or hotel points that you can redeem for free travel. If you love traveling, this is the best kind of credit card for you.
3. Low-Interest Rate Credit Cards:
Some credit cards offer low-interest rates on your credit card balances and purchases. These are good options if you tend to carry a balance.
4. Credit Cards for Big Purchases or Transferring Debt:
Suppose you have a large purchase or want to transfer high-interest debt from another card. In that case, you should consider getting a 0% interest credit card.
These cards typically come with an introductory APR for a fixed period before the regular rate kicks in. Just make sure to pay off your balance before this time expires, or you will be charged with hefty fees.
5. Student’s Credit Card:
You may qualify for a credit card with reasonable terms and low rates if you are a student. A student’s credit card often comes with rewards that appeal to students, such as cashback on gas or groceries.
6. Retail Credit Cards:
Retail credit cards are designed for people who frequently shop at a particular retailer. Retailers such as department stores and gas stations have in-house credit cards that save you money when you purchase from them.
7. Business Credit Cards:
You should consider getting a credit card that offers rewards and cashback for your business expenses if you own a business. It is also a good backup when you need to make a purchase, and the company doesn’t accept other credit cards.
Six things to consider before buying a credit card
Now you know what credit cards are and the various types available, let’s explore some main factors you should consider when choosing a credit card. So you’ll know what to look for if you decide it’s time to get a new credit card. So let’s begin!
The most important thing to consider when shopping for a credit card is the fees. Fees are how your issuer makes money from you. So let’s look at some of the most common fees associated with credit cards:
- Annual fee
- Minimum Interest charge
- Cash advance fee
- Balance transfer fee
- Application fee
2. Annual Percentage Rates (APR)
Some credit cards have lower interest rates than others. If you tend to carry a balance from month to month, this may be important to you. Look for a credit card with low-interest rates as high-interest costs can quickly add up and make it difficult to pay off your balance.
3. Rewards Programs
Look at the rewards programs available with the cards you are considering, such as cashback or airline mile incentives. Some cards will offer you a higher percentage back on specific categories of purchases like gas or groceries. Cards with no annual fee may offer more generous rewards than those that charge you for membership.
4. Customer Service
Customer service is also important when choosing a credit card. Look for the issuer with 24/7 customer service and easy access to representatives if you have questions about your bill, how your points add up, and more.
5. Additional Perks
Most credit cards offer additional perks such as car rental insurance, purchase protection, and extended warranties. These may not be important to you, depending on your situation and lifestyle. Still, they can be helpful in some instances.
6. Your Credit Score
Your credit score will affect the interest rate you qualify for and what type of rewards programs are available to you. So the higher your credit score is, the better your rewards programs will be and the better your interest rate will be.
Five Benefits of a Credit Card
Using credit cards has numerous benefits. Here we will take a look at the five most important benefits of having a credit card.
1. Build your credit score
Having a credit card allows you to establish or maintain your credit history. It will show lenders that you are responsible when it comes to using other people’s money, paying off debt, and maintaining accounts in good standing.
Good credit history can help improve your chances of getting approved for loans in the future.
Another benefit is convenience. You can use your credit card to make purchases online, over the phone, through mail order, and at local retailers, even if they don’t accept debit cards or cash.
When you sign up for a credit card, many issuers will allow you to choose a three-digit security code for online transactions, which adds an extra layer of protection to your account.
3. Immediate access to funds
When you pay with a credit card, the money is not deducted from your checking account until several days later (your issuer may vary). This means that if you need quick cash, using a credit card can give you access to funds sooner than a debit card or check.
4. Rewards and benefits
Credit cards can be very rewarding. Many offer cashback, air miles, and discounts on such things as movie tickets and restaurants. Some will even add extra warranty protection on purchases you make with the card.
5. Can be used everywhere
The great thing about credit cards is that they can be used anywhere. No matter where you live or shop, chances are there’s a store that accepts credit cards as a form of payment.
Most major airlines and hotels also accept them for goods and services rendered; even some car rental companies do now too!
Credit cards can also be very convenient in emergencies. If your wallet is stolen, you can rely on credit cards to cover any expenses until you get a new license or other forms of identification.
Choosing the right credit card is crucial, as it can affect the rest of your financial life. Take into consideration;
- What type of rewards program do you want?
- How much interest you’ll pay?
- And whether or not you need other benefits like extended warranty protection before making a final decision.
Once you settle on a card, make sure you manage it properly. Remember to make your payments on time, don’t max out the credit limit, and keep an eye on your statement for fraudulent charges.