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Your Fail Safe Method for Choosing a Credit Card

Many people put more effort into ordering from a fast food menu than they do choosing their primary credit card. Since a credit card can often turn into the fast lane to debt or excessive overspending, it's vital that you have a checklist of measures to use in making the right choice.

Maintaining good credit can have great bearing on some of our most important desires, such as buying a home, buying a car, starting a business, and getting lower interest.

There are a number of important personal habits and considerations that should be used when finding a card to best serve your needs. The following is your fail safe method to finding the right credit card for your personal needs.

First, check your credit score. A free copy of your credit score can be accessed at Equifax, Experian or TransUnion, the three major reporting agencies. Because the best cards require very good credit, knowing your score in advance will help define your field of selection.

With credit score in hand, it's time to consider spending habits. Basic questions to answer are will you pay the full card balance each month or carry a balance? Will this card be used for most household purchases, all large ticket items or only for emergencies?

Annualized percentage rate is the crux to how much you ultimately pay for stuff bought using a card and often is the depth gauge to overall debt level. Cards come with either fixed or variable interest rates, and each has advantages. Preferably, start by choosing a card that offers 0% interest rate for the first 12 months.

Fixed rate cards are just that with the annual percentage rate set at a fixed level. National averages on fixed APR cards range from 16.54% upward to 22.03%. However, credit card companies have the right to increase fixed interest rates at any time per the card agreement.

Variable rate cards have interest rates often stated as an index plus margin. For example, the actual rate charged might be "index + 11.99%". If the current prime rate index is 4%, the card APR will equal 15.99%. For most people, tying the interest rate to Federal Reserve decisions can be tricky, but it can also be advantageous depending upon how the card is used.

Another important factor in credit card choice is the credit limit, or how much you can charge before reaching the cap. You want a limit that is high enough so you're not always close to the maximum, especially if you intend to carry a balance. Carrying a balance at the max or charging close the limit cap can have a negative effect on your credit score.

Also, review the card issuers method of computing interest charges. Generally, the average daily balance method is used. The monthly rate is computed by adding all daily balances together and dividing by the number of days in the billing cycle. Using this method, the more days in the cycle will give a lower interest charge. For example:

If average daily balance is $225.00 and billing cycle is 25 days, interest charged is 225/25 = 9%.

If average daily balance is $225.00 and billing cycle is 30 days, interest charge is 225/30 = 7.5%.

Equally import with interest rate calculation is to know the fees and penalties that can be tacked on to your monthly payment. Transaction fees for transferring a balance from another credit card are common, as are fees charges applied when you pull a cash advance from an ATM using your credit card. Here are common fees to give thought to:

annual fee you pay annually for the privilege of using a credit card

balance transfer fee is usually between 3% and 4% of amount transferred

cash advance fee between 2% and 5%

foreign transaction fee is a charge of 3-4% ​

Also, be particularly sensitive to late payment fees. While our intentions are to always make the monthly payment on time, it doesn't always work out that way. Penalties for missing the payment due day can run from $35.00 to $50.00.

Finally, list the incentives you want a card to offer. Do you need a rewards card paying bonus points every time you make a purchase? If so, will the point accruals be used for travel, merchandise, cash back, or a combination of these? Do you need a card that is geared toward business use or just for everyday purchases? Do you simply need a low interest rate card?€‹

The bottom line is to find a card that will most closely cover you personal spending habits. All of these checkpoints can be covered in short order. Begin by listing your personal needs, highlight your must have requirements, and use the internet to review cards meeting your criteria.

My lifelong interest in personal finance has led to teaching community classes to a variety of groups. Retirement activities include travel and serving as a volunteer site coordinator with the VITA Tax Program.