Comparing different credit card offers is essential in determining whether any of the offers are right for you. But how do you do it? This is seemingly complicated task can be overwhelming to the uninitiated, though it’s not difficult to do once you know what you’re looking for.
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When you’re comparing multiple credit card offers you’re looking at several different things including interest rates, annual fees, terms and conditions, and rewards programs. It’s important that you compare all credit card offers you’re considering on a line-by-line basis. Doing so is the only way to ensure an equal comparison based on the same criteria applied to each card. In other words, a secured credit card is not in the same league as a low interest charge card; comparing the two would be unproductive.
How important is it to compare APRs?
The Federal Reserve Board demonstrates the importance of knowing and understanding APRs with a sample chart made available to consumers. This chart shows different rates based on consumer credit worthiness, different types of transactions, and penalties imposed for late payments. Their chart is printed to look like something you might commonly see in the disclosure portion of a typical credit card offer.
It’s important for you to compare these rates because they tell you exactly how much interest you’ll pay on a given credit card.
However, just don’t focus on the raw numbers themselves. Look for things like credit card introductory APRs.
Introductory APRs are reduced interest rates you might pay for only six months to a year before being bumped up to the standard APR. You may find one offer with an introductory rate of 0% for six months, and another with no introductory rate and an APR of 15%. The former offer is only better if the standard rate after six months is lower than 15%
What should I be looking for in terms and conditions?
One of the things the Federal Trade Commission suggests consumers look at in terms and conditions is the explanation of how finance charges are calculated. Some cards calculate credit card interest on a daily basis while others do so at the end of the month. How this is calculated will determine how much you’ll pay in monthly finance charges.
Without going into the math, it’s generally accepted that you’re better off with a monthly computation if you’re the type of person who will pay off your credit card debt in full every month. If you carry a balance from one month to the next, you’ll probably do slightly better with a daily computation.
Just remember that your APR is divided by 12 in order to determine the rate used to calculate your finance charges for every billing cycle.
Also in terms and conditions, you need to watch out for grace periods and additional fees and penalties. Most credit card companies offer a five-day grace period to allow for circumstances that might delay a timely payment. But don’t simply assume. If your credit card company doesn’t offer a grace period you could unwittingly bring a penalty on yourself just by being a day late with your payment.
One final area that definitely needs comparison is that of transaction fees. It’s not uncommon for consumers to be completely unaware of these fees because most of us don’t read the fine print in the offers we receive. Transaction fees apply to things like balance transfers, cash advances, foreign transactions, and exceeding credit limits. Some cards even charge monthly maintenance and annual membership fees.
It’s been suggested that the only reason credit card companies continue to charge excessive fees is because ignorant consumers are unaware they are paying them. Since there are plenty of credit cards that don’t charge excessive fees, there is no reason for you to accept one that does unless you cannot qualify for a credit card otherwise. When you’re comparing different offers just be sure you are aware of all the potential fees involved before you apply.
On one final note, be very skeptical of so-called platinum or gold credit card offers, which impose an extremely high annual fee plus a monthly maintenance fee. An example would be a card that charges $99 for annual membership plus $19 per month. According to the Federal Trade Commission, these types of cards are usually scams. Legitimate credit card companies do not charge such excessive fees on an annual or monthly basis, therefore be wary of the unethical credit card companies that are out there.
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