Credit Cards: How To Identify The Best Credit Card

The average American consumer uses anywhere from one to four credit cards on an annual basis. The average household debt is $6,000. Living beyond our means has become part of the American way of life.

But sometimes it makes sense to use credit. When purchasing car fuel in bad weather, for example, it's easier to slide a credit card at the pump than dash indoors to pay with cash. Responsible credit card use also helps to build a solid credit history that will come in handy when preparing to make major purchases, such as a car or a home.

With all of the credit card offers that come through the mail or to an email account, which one should you choose? Is it better to get a lower annual rate or a higher charge limit? Here are a few things to consider when applying for a credit account:

1. Go for the low down. A low annual percentage rate (APR) is an attractive feature for most credit cards. That's why so many offer zero percent interest for an introductory period that typically runs between three and twelve months. But you have to check for the rate that kicks in after the introductory period ends. Sometimes it can be a double digit figure, from ten to twenty percent or higher. Look for a credit card offer that maintains a low interest rate permanently. Less than ten percent is logical; less than seven percent is pretty good.

2. Beware of kickback offers. Some cards promise a monthly rebate of three to five percent on average based on the amount of credit used that month. For example, if you charge $100 with a three percent rollback, you'll see a $3 deduction on your monthly statement. While savings can add up as you charge more frequently, the reward becomes the problem. A responsible financial goal is to charge less, not more, so this particular benefit is not really helpful except for those who pay off balances each month.

3. Ditto for playing points. Other cards award so many points per debt dollar each month. For example, you may be able to "earn" five points per $100. Again, the more you charge, the more points you earn. At some point you may be able to accumulate enough points, say 16,000 or so, to choose a "free" gift, such as a vacuum sweeper or coffee maker. But who needs these things anyway? It's better to charge less and save more than to be awarded things you don't need or particularly want.

4. Watch for annual fees and hidden costs. Some credit cards require an annual maintenance fee in the range of $25 to $50. It will be automatically posted to your account each year. Another potential fee can accrue from late payments. If your payment arrives even one day late, you may be charged a $25 to $30 fee, which again, will be posted to your account as a charge expense. If you go over your credit limit by a few dollars, you will probably be assessed an over-the-limit fee of another $35 to $50 and your interest rate may be kicked up automatically several notches to double digits. All of these stipulations should be explained beforehand when your credit application is accepted. But some customers do not fully understand all terms until it is too late.

5. Choose a credit card company you can trust. Some have strong, solid backing from nationally known banks or financial institutions. Others are offered through small organizations with new or shaky standing. Know who you're dealing with and whether the company will stand behind you in a dispute with a merchant over a purchase.

6. Be ready to transfer balances. If you open an account with one bank but are later offered a lower rate with another, don't hesitate to transfer your existing balance to the bank with the lower rate. But check all possible fees first to make sure it truly will cut costs for you.

Using credit can enhance your lifestyle or weigh you down with worries and expenses. Take time to fully explore each option before applying for a credit card. Then use it responsibly to avoid additional charges. If possible, pay off monthly balances instead of building huge debt that may land you in financial difficulties.

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