NDSU Extension Service - Ramsey County


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A New Credit Card for a New Year

A New Credit Card for a New Year


                Shopping for a new credit card can be a daunting task.  Choose the right credit card, use it wisely and you can reap many benefits.  The wrong card for you and your situation can result in many hidden costs. Following are a few points to consider before you select a credit card:

                 Spending habits - The first question to be answered is how you intend to use the card. Are you the kind of person who will pay off the card every month without fail, or do you anticipate carrying a balance from month to month? Are you going to use it to pay for everything, or just for emergencies?

  • If you're going to pay the bill in full every month, then the interest rate doesn't really matter to you. Look for a card with no annual fee and a longer grace period so you don't get hit with a finance charge.
  • If you're going to carry a balance, you want the lowest possible interest rate and a low introductory rate.
  • If this is going to be your go-to-card for most of what you buy, look for a card with a generous credit limit and a solid rewards program.
  • If it's only going to be used for emergencies, go for a no-frills card with a low interest rate and low fees.

                 APR rate- On a credit card offer, the interest rate appears as the APR, or annual percentage rate. It can either be a fixed rate or a variable rate that is tied to another financial indicator, most commonly the prime rate. With a fixed-rate card, you know what the interest rate will be from month to month; a card with a variable rate can fluctuate. However, even a card with a fixed interest rate can change based on certain triggers, such as paying your card -- or any card -- late, or going over your limit.               

                Credit limit -This is the amount of money that the credit card issuer is willing to let you borrow. Depending on your credit history, it could be anything from a few hundred dollars to tens of thousands of dollars. If you’re new to credit, it’s wise to start out with a low credit limit to become familiar with responsible credit card habits.

                 Fees and penalties -There's no shortage of ways for a credit card issuer to make money off you. Common charges include fees for transactions, such as balance transfers and cash advances, or for asking to increase your credit limit or make a payment by phone. There also are penalty charges for paying your bill late or going over your credit limit. Look for cards with reasonable fees. On balance transfers, for instance, look for offers with no transaction fees and zero percent interest for at least 12 months.

                Balance computation method - If you're going to carry a balance, you need to consider how the finance charge is calculated. The most common method is average daily balance, which means that the daily balances are added together and then divided by the number of days in the billing cycle. Avoid credit cards that compute the balance using two billing cycles; this winds up costing you more money in financing fees.

                Reward programs -Many card issuers offer reward programs to their customers to induce them to use the card.  Look for a program that offers flexibility, such as cash or travel, and rewards you'll actually use, that are easily earned and redeemed regarding how many points you can earn.

                Grace period - The grace period is the amount of time you have to pay your balance in full before a finance charge is added. The period is usually expressed in days from the billing date, i.e. “28 days from the billing date?

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