What You Should Know About Credit Card Costs

Yes, credit cards can have costs. There are two main costs associated with credit cards: (1) interest rates; and (2) annual fees. However, even though these are the two monetary costs, there exist many intangible costs (such as customer service).

First, the monetary costs. Why oh why would you pay just to own a credit card? Annual fees are just nuts! Unless you have bad or no credit, have absolutely no other choice, and desperately need credit, then it may be... NO, scratch that sentence – there is absolutely no reason to pay an annual fee on a credit card. There are far too many credit choices from which to choose. Do not get a card with an annual fee, it is that simple.

In addition to annual fees, credit card companies charge other fees of which you may not be aware. If you are ever late on a payment, there is usually a fee. If you go over your credit limit, there is usually a fee. Know what these fees are and factor them into your decision as to whether to obtain that particular card.

How about interest rates? These can be pretty sneaky. First, you should notice that the interest rate is different for credit purchases and cash advances. Cash advances always carry a higher interest rate. Additionally, your monthly payment will not count towards your cash advance balance until your credit purchases balance is paid off. Why? Cash advances carry a higher interest rate, therefore, the longer that that balance remains unpaid, the more money the credit card company makes.

Also, make sure that the interest rate that is advertised is not an “introductory” rate or a “variable” rate. Introductory rates only last a couple of months (at most, one year). After that introductory period, your interest rate resets to the default rate. The default rate is usually a lot higher than the introductory rate. Therefore, be aware of what you are getting yourself into.

Variable rates change with economic conditions, therefore, you could have a great rate one month and a terrible rate another month. Do not play a guessing game with you credit card interest rate. Get a low fixed rate and you will be much happier.

Intangible costs can ruin a credit card. Have you ever called your credit card company only to listen to an infinite amount of menu options? When you finally get a real person on the phone that person tells you that you have called the wrong department. In an attempt to transfer you, the main menu comes back up and you are back to square one. At the least, this whole process is a waste of time. Why put up with this? As I said before, too many credit card options exist for you to have to settle for one with mediocre service. Your time is valuable; do not waste it on bad customer service!

Know the costs that are associated with a credit card. By doing this, you will be able to make the best decision possible based on your needs and wants.

How to Apply For a Credit Card

Applying for a credit card is a simple process. Everything can be done online nowadays. Additionally, you can receive an answer as to whether you are approved for the credit card, usually within thirty seconds. All you have to do is complete the application (which usually consists of you name, address, phone number, social security number, employment information, date of birth, etc.), click the submit button (if applying on-line) or mail in the application if submitting a hand written application, and wait for a response. The only part of this process that is difficult is determining what card is right for you.

There are many types of credit cards that offer many different types of options. First, you need to know if you want a charge card or a credit card. What is the difference? A charge card works just like a credit card except the balance is due in full at the end of a billing cycle, meaning that you cannot make payments over time. If you charge $1,000 during the billing period, $1,000 is due on your next bill. Charge cards are usually reserved for people with disposal income or people who have an established, high credit score.

A credit card, on the other hand, allows you to pay your balance over time at a set interest rate. The obvious advantage is that you can pay a charge over time. However, the additional advantage is that certain credit cards can be obtained even if you have no credit or bad credit.

Second, you need to determine your credit bonus. Do you want reward points that are redeemable for cash, airline tickets, and other merchandise, or do you want a low interest rate card? If you do not use you credit a lot or if when you do use your card you only use it for small purchases which you usually pay off in full, you may want to opt for the rewards card. This way you can build points towards rewards and the usually higher interest rate will not be a detriment because your balances are too low and because you always pay off the balance in full.

However, if you are just starting to establish your credit, you may want to go for the low interest card. This way, if you misuse your card, you will not get severely punished by the interest rate.
If you use your card a lot, look for a nice balance between rewards and low interest.

Third, should you have a card that charges an annual fee? Simply put, unless you have no other choice because your credit is bad, there is absolutely no reason to have a card that charges an annual fee. Do not get one!

Last, the type of card (Visa, MasterCard, American Express, Discover, etc) is important. I am not the biggest fan of Discover cards because they are not always accepted, but in all fairness to Discover card, I never have had any problems with customer service. If you are getting your first card, opt for the Visa or MasterCard. These two cards are accepted virtually everywhere, and the credit cards of the major banks in the United States are usually either Visa or MasterCard. It just makes sense.

Find out which card you want, submit the application, and get your shiny new card. Just remember not to abuse the privilege.