Even if your credit is just decent, it's not all that difficult to find a credit card. Besides those card offers that arrive in the mail from your bank, you can also go to the websites of major credit and financial companies to apply for cards there. That's to say nothing of the huge variety of credit cards offered by airlines, stores and hotel chains.
Of course, with so many options to choose from, you can bet that they're not all created equal. It can be difficult to find the card with the best terms, but with a little diligence, you can often narrow down your choices to just a few. Here are some of the signs that indicate a bad credit card.
No Rewards Program
These days, many credit cards offer rewards programs that give you special perks when you pay with the card. There are all kinds of them available. Many cards may qualify you for special discounts at certain stores, restaurants or hotels. Others may reward you in the form of a percentage of your money back on purchases. Some even help you save money on gas when you pay for it with your card, potentially tens or dozens of cents off of each gallon.
Then there are the credit cards that use a points-based rewards program. These are most often seen with cards issued by retailers. As you make purchases on the card, you accumulate points that can later be redeemed for products or services offered by that company.
If you play your hand right, these rewards programs can even be used to reduce your spending on everyday items, like groceries or household products. There are dozens of cards available that have these rewards programs, so don't settle for one that doesn't even give you an incentive to use it.
High Interest Rates
When you don't pay off your credit card balance each month, you're inevitably going to pay interest on what you owe. Unfortunately, if a card comes with a high annual percentage rate (APR), you could end up paying a ridiculous amount. In some cases, a high APR can keep someone from being able to fully pay off their balance in a timely manner, keeping them in long-term debt. Furthermore, once they do finally manage to pay off the balance, they've likely paid considerably more for the original purchase than it was worth.
For instance, assume for the moment that a card has $1,000 with a 20 percent APR and minimum payment of four percent. If you just pay the minimum, you'd need to pay around $40 per month. However, it will take you almost seven years at that rate. Because of the added interest, by the time the balance is paid off, you've paid over $500 more in interest alone, for which you received nothing.
Now assume that you have the same balance and minimum payment percentage on a card with a ten percent APR. The monthly payment will still be about the same, but instead of seven years, it'll take you less than five with minimum payments. Plus, you will have only spent an additional $200 or so as interest.
Although it's never recommended to carry a balance on your credit card, it's not always avoidable. Because of this, it's wise to steer clear of cards with an obscenely high APR, which only cost you more money. When you really need to use the card for something that will take months to pay off, you don't want to pay more than you have to.
Every card has a pre-defined limit that dictates how much you can charge to it. It's not often advisable to max out any credit card, but a high limit can be a blessing in an emergency. For instance, if your car breaks down and needs repairs your bank account can't handle, you likely won't be able to cover them with your low-limit card, either. In addition, having a card with a high limit can even boost your credit score. This is because a higher credit limit compared to your balance gets you a better rating. If you stumble across a card offer that only gives you a $500 or lower credit limit, you should keep looking.
Costly Penalties and Fees
Varying interest rates are a clever but devious tactic used by some credit card providers. It's the old bait and switch. They lure in customers by offering temptingly low interest rates, which is the first sign that something is amiss. If it seems too good to be true, it usually is. In reality, this great interest rate you think you're getting can be changed by the company whenever they choose, without notifying you. What's worse is that you can rest assured that it will change, and it'll hit you below the belt, right in your wallet.
Always choose a card that comes with a fixed interest rate, even if the APR is a little more. However, it's necessary to advise caution even with these. In certain cases, companies can and will change the interest rate even on a fixed-rate card. Again, be sure to read the fine print before committing.
Foreign Transaction Fees
If you travel outside the country at all, whether it's for pleasure or business, you'll want a credit card that doesn't work against you for this. Many cards levy special fees on credit transactions done overseas, which are often around three percent of what you charged to the card. When you're paying for your entire trip with your credit card, this seemingly low figure will quickly grow. If you need a credit card for use in a foreign country, look for one that works with the payment terminals there, and that has the lowest possible fee on these transactions.
Credit cards can be nice to have, but selecting one that saves you money instead of costing you takes some effort and research. Fortunately, by sticking to the tips above, you can better understand what to avoid and what to look for when choosing the right credit card for your needs.