Four features to consider when selecting your ideal credit card
By Leandra Schindler, CFP®
I’ve come to the realization the junk mail situation at my house is out of control. 90% of the time I grab the mail it consists of 100% junk. Coupon books full of “deals” on basement waterproofing and Mexican food. The local cable company trying to convince me my current streaming subscriptions aren’t enough; I definitely need an additional 250 channels to pick from. So much paper, so many advertising dollars spent and it’s all thrown into the recycle bin without so much as a glance from me.
One piece of junk mail by far takes up the majority of my mailbox space: credit card offers. I probably get a dozen per week. And they aren’t just addressed to me, they come addressed to people who haven’t lived at my house for years, or to family members who’ve never lived here. The offers are printed on glossy paper with appealing words on them. “No interest for a year” “No introductory fee” “Get 200 million points with your first purchase”. Since I’m pretty content with my current credit card, these pieces of paper get tossed in the recycle bin along with all my other junk mail.
But what if you weren’t happy with your credit card? How do you determine if that shiny credit card mailer is actually a good option or just another dollar spent by the credit card companies so they can get their hands on your hard earned money? To take some of the guess work out of determining if that shiny mailer is indeed “Junk” or if it’s a product you could actually use, here are four features to be on the look-out for when searching for the perfect credit card.
The annual fee on the credit card is basically a fee the credit card company charges for benefits associated with that card. This fee is charged once a year and is sometimes waived as an introductory benefit. READ THE FINE PRINT. If the annual fee is being waived, you should be able to find in the fine print what the fee will be once the introductory period is over. If you can’t find that information, call the credit card company and ask.
Sometimes you’ll need to pay an annual fee. If you’re looking to build or repair your credit, secured credit cards typically have an annual fee. If you’re looking for perks like airline miles, cash rewards, or concierge services in your credit card; you’ll likely have to pay for those services. If the value of the perks you’re getting don’t exceed the annual fee – it may not be worth your while to use a feature loaded card.
Some cards actually have no annual fee. They may not have benefits like concierge services or cash back, but you won’t be paying to use those features you don’t want or need. If you don’t care about special features and are just looking to use a card occasionally to help with cash flow or to build your credit, seek out a card with no annual fee.
Annual Percentage Rate (APR)
APR is the price you pay to the credit card company to borrow their money (interest). This interest rate is expressed annually and the rate can be variable or non-variable, typically ranging from 6% up to 25% annually. These rates are based on the U.S prime rate and are subject to your credit score. More credit worthy individuals pay less and less credit worthy individuals pay more.
Depending on your credit card, the interest you owe monthly is based off of a daily or monthly periodic rate. In most cases, if you pay off your entire balance by the due date, you won’t owe your credit card company any interest that period. When shopping for a new credit card, often a promotional or introductory APR will be offered. READ THE FINE PRINT. Determine when that APR ends and if the APR only applies to certain transactions. If you usually keep a revolving credit card balance or want to transfer a balance from an existing higher rate credit card, logically you’d want a lower APR. If you pay off your credit card every single month a low APR may not be as important to you as other card features.
Convenience to the Card Holder
You won’t see this listed in the fine print but I feel it’s often overlooked by consumers. Picking the right credit card is also about making the experience easy for you. Do your research. Is your entire life on your mobile device? You should make sure the card you select has an app you can easily use and offers mobile alerts for fraud and upcoming payments. If you have to wait for a statement and write a physical check to your credit card company each month when you don’t even know where your checkbook is right now, keep looking.
Do you have an existing relationship with a bank or credit union? Check out their website or visit your banker to see what credit cards they have to offer. I have a credit card through my bank and via their online banking I can see all of my accounts in one place, automate my monthly payments, and easily redeem my cash rewards. It’s simple and convenient. When you layer multiple products (like checking, savings, auto loans, credit cards) at one financial institution, you can often qualify for discounts and special account features your bank reserves for their best customers. It never hurts to ask your banker what you may be eligible for.
It seems like you can get credit card rewards for basically anything you’re interested in these days. Trips to Disney, airline miles, gift cards, and more. To make it simple, credit card rewards come in basically three categories: Cash, Points, Miles.
The way rewards are calculated is typically pretty complicated. READ THE FINE PRINT and get a good understanding if you’ll easily be able to accumulate what the card is offering. If you think you’ll need to use your card significantly more in order to obtain what the card is offering, the rewards are definitely not worth it. Especially if there is an annual fee on the card. Keep an eye out for expiring rewards as well.
If you feel the rewards would be an additional benefit to your current credit card behavior, you are able to accumulate more value in rewards than the annual fee of the card, and you have a decent understanding of the reward program – go for it.
While all of these features are important in the decision to apply for a new credit card you may have other factors to consider in your unique decision. I always encourage friends, family, and clients to do their own research. While it may take an hour out of your day to do a little digging, it’s always worth the time to better understand the financial decision you’re planning to make. Credit cards are one of many tools that can be used to help you grow into your best financial self but like any other type of debt, they should be used responsibly and in conjunction with a carefully constructed financial plan.
If you’re searching for general information about credit cards, The Consumer Financial Protection Bureau has a great website full of consumer tools and frequently asked questions about credit cards, auto loans, mortgages, pretty much anything the average consumer would have questions about. If you’d like to compare several credit cards at one time, Mint and Credit Karma both offer user friendly comparison tools. While that credit card mailer you received may seem like your best option, always do your research and see what other choices are available. If you're interested in professional assistance with budgeting, creating a debt pay off plan, or getting on the right track towards financial success, feel free to contact me.
Thanks for reading.