How to Do your Credit Card Homework

by Guest

Credit cards are accepted almost everywhere, which makes them the payment method of choice for most people, but before applying for a credit card, make sure you do your homework to find the best one for your needs.

Before you proceed, consider your credit situation. Do you have good credit? Have you even established credit? Have you previously been through financial stress or gone through a bankruptcy?

If your credit history is good, you should have no problem qualifying for a low interest rate card. If you have had financial problems in the past, interest rates offered to you may be higher.

It may be tempting, but don’t apply for just any credit card offer that comes in the mail. Some of these offers may look good initially, such as having a 0% interest rate for the first year, but that rate often increases dramatically after the trial period.

Opt for the card with the lowest interest rate possible, but don’t assume all low-interest cards are alike. Some come with hidden fees.

Even if you have poor credit or have yet to establish credit, you may be able to qualify for a low balance credit card with a decent interest rate. Using a credit card wisely is one of the fastest ways to build good credit, so don’t be afraid of applying.

If you already have a credit card but the interest rate is high, think about transferring your balance to one with a lower interest rate. You can even combine several small card balances into one, low-rate card.

When you consider a balance transfer, use credit card comparison sites such as moneysupermarket to view the differences in APR percentages, rewards and product reviews.

Transferring multiple balances onto one low-interest rate credit card can end up saving you thousands of dollars per year in interest charges alone, so take action as soon as possible.

Remember, maintaining good credit takes discipline, so pay your cards on time. If possible, pay your balance in full each month or at least over the course of a few months.

To pay off a credit card faster, always pay more than the monthly minimum. Paying the minimum only earns the credit card companies more money in interest, so you’re doing yourself a favor by doubling or even tripling those monthly payments.

Another option is to use prepaid credit cards. These cards allow you to put your own money up as the balance, meaning that anytime you use it, you are deducting from your total amount.

In some cases, prepaid cash cards require good credit, but some can actually help you recover from a bad credit rating when you cannot qualify for a regular credit card.

When applying for a credit card, ask yourself if you’re interested in rewards. These rewards vary and include things such as airline miles, a points system for shopping, or even cash back.

The benefit of a rewards card is that you will earn points each time you use it, but the downside is it’s only worth it if you pay the balance completely off each month. If you don’t pay if off in full each month, interest accrues, outweighing the value of any rewards.

Applying for the right credit card is a big financial decision, so be a smart consumer. A little extra comparison will go a long way.

This is a guest post by Moneysupermarket.

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{ 1 comment… read it below or add one }

Maggie@SquarePennies July 12, 2011 at 1:07 pm

Good post with practical adivice! I had not heard of the MoneySupermarket–thanks for that! I look at bankrate.com for the current details. Mr.CreditCard will send you the latest offers by email. I also like the forums at FatWallet.com for credit card info and tips.

However you find the cards to consider, be sure to make a chart showing the details of each card before you decide. And the sooner you can start paying your credit cards in full each month the sooner you are able to use cash-back cards or cards that give you points!

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