Choosing a Credit Card
How Not to Choose Plastic That's Going to Embarrass You at Dinner
Responsible Rosanne decides to get a credit card. She's at UCLA and she'll be graduating in a few years with a hefty student loan. She wants to make sure that she builds up a nice credit history so she can get a nice apartment, and she's smart enough to have read Shmoop so she knows how important credit cards can be.
She sends away for credit card information, and soon her mailbox is flooded with offers. She looks at cards offering a 0% rate and cards with pictures of pandas on them. How is she supposed to choose?
Buried under that stack of paper, Rosanne should ask herself a few questions:
- How will she be using her card? Is it for emergencies only? Will she be charging a lot on it?
- What sort of card does she want? One with reward miles? One with a low interest rate? What's important to her?
- What's the interest rate (APR)? It can be tricky to figure out since credit cards list their best rates on ads to lure people in. Her actual rate might be very different depending on her credit score and employment situation. For the sake of comparison, Roseanne can read the fine print to figure out the highest rate the card charges and go by that rate.
- Is the APR listed an introductory rate? If so, how long will it last? What will be the rate after that? Are there limits on the types of purchases she can make with the introductory rate?
- Is the APR variable or fixed rate? Variable rates may be better but they can increase faster. If she wants to avoid the element of surprise, a fixed-rate card might be the answer.
- Is there an annual fee?
- What is the credit limit? Will that limit meet her needs?
- What are the extra fees the card charges? This one will require more reading of the fine print about late payment fees, cash advance fees, and other costs. If the credit card earns rewards, will she have to pay to use or get those rewards?
- What can cause the APR to go up on this card? Is it just the usual suspects (late payments and overcharging), or are there other reasons?
- How is interest calculated on the card?
- Once she gets her credit card bill, how long does she have to pony up the money?
- What happens if a payment is late? What kind of penalties and interest rate increases is she looking at and how long would any interest rate increases last?
- What happens if the card is stolen? How much will she have to pay for unauthorized charges?
That's a whole lot of questions and Rosanne risks getting some eyestrain reading all the fine print. But it'll be worth it—we promise.