Getting credit is great. Someone believes us enough to lend us money that we can spend, and spend, and spend… Once the bill arrives, we often wonder – was this the best idea? Here are four great things to know before you get that credit card and start spending…and spending…and spending…
- How much is the APR?
The Annual Percentage Rate, or APR, is the amount of interest that a credit card will charge you per month on the purchases you make. Many cards may entice you with 0% introductory offers and the switch into a high (29.99%) APR. Be very careful in deciding whether a purchase with a 0% interest card is something you can pay off by the time the introductory offer period ends. If not, it may be better to look for a card with a lower APR rate. For someone with good credit, you should be able to get a credit card with an APR as low as 14% or as high as 22%.
If you do not have good credit, consider going to your bank to try to get a secured credit card. With a secured credit card, you put cash down to “secure” your credit limit. If you put $500 down, you get a credit card with a $500 limit. You can then use the credit card for purchases, receive a bill, and pay your statement – just like with any credit card. By using a secured credit card properly, you can increase your credit score and create great spending habits.
- Pay your card off in full each month
The best way to increase your credit score and keep your finances healthy is to pay your credit card balance off in full each month. Many times, especially around the holidays, that is easier said than done. If you cannot pay your balance off each month, pay more than the minimum payment. Try to double the minimum payment. By doing so, you will significantly reduce the amount of interest you will have to pay.
- Watch out for fees
Leave it to the lawyer to remind you to read the fine print – but it is very important. Many cards have annual fees or unusual fees that may add unnecessary cost to your credit card. Annual fees can range anywhere from $75.00 per year to $500.00 per year. Unless you are using the card for more than 20 transactions per month, you may not see the benefit or gain perks by using this type of card. Unusual fees can include monitoring fees, quarterly fees, security fees, etc. The purpose of these fees is usually not explained in the fine print. This may be an additional way credit card companies try to cheat you into paying additional fees for things you do not need or may not ever use – like that roadside service some credit cards provide.
- Consider all of your credit card options
We’ve all been there – you are standing at the checkout line of your favorite store and the cashier asks if you want to open a credit card because you can save 15%. This is not the time we make our best financial decisions. Very often the cashier will not be able to discuss the pros and cons of the card with you, the cashier will not be able to tell you what your APR will be, and the cashier will not know if there are any annual fees associated with the card. This is not the time to say “yes”! Take some time and do your homework. Do you want a card with rewards points? (Be sure to read the fine print on those too – some rewards points must be used with 3 months, others require to you to purchase items from specific websites). There are helpful tools out there to allow you to compare different credit cards. My favorite tool is the smartphone app, Credit Sesame. Credit Sesame can monitor your score and give you helpful tips to improve your credit score. Credit Sesame can also compare different credit cards that may be available to you. The app tells you your odds of being approved for a credit card and reviews from other consumers. It is a great tool if you are ready to do your homework.