Shopping for Credit Cards

• Author: Daniel A Edelman
• Profession: Lawyer
• Pages: 9-12

9

Shopping for Credit Cards

CHAPTER

3

Credit card rates vary widely, from under 10 percent to up to 30 percent or more. Annual fees also vary

widely. Compare the annual percentage rates (APRs) and annual fees (which are not included in the APRs

for credit cards). Only approximately one-third of credit card users shopped around for their last cards.

In deciding what terms are important, first decide how you plan to use the card. If you intend to

use the card as the equivalent of cash and pay it off every month, the APR would appear to be less im-

portant. However, the fact is that about 60 percent of Americans who have credit cards carry a balance,

and many people who don’t plan on carrying a balance do so because they encounter unexpected major

expenses. Consider how you have actually

used credit cards in the past. Unless you

have not carried a balance for years

and are immune from loss of employ-

ment, major expenses, or other cir-

cumstances that might result in your

carrying a balance, you need to get

the lowest-APR card that otherwise

satisfies your needs.

If you have consistently paid off

your balance every month and reasonably

expect that you will continue to do so, then you may want to focus more on fees and rewards. Compare

the value of the rewards you expect to receive (and use) each year with the annual fee you might pay.

You should only look for rewards cards if you have above-average credit and you pay your bill in full

each month.

Be careful of credit card advertisements. Some ads, particularly for subprime cards, offer a credit limit

“up to” a certain amount if you qualify for the maximum. A low credit limit can be very detrimental.

Because your utilization of credit is a major factor in determining your credit score, maxing out a card

with a low credit limit can hurt your credit score. In addition, subprime cards are often “fee-harvester”

cards, in which a major portion of the issuer’s income consists of over-the-limit and other fees. The extent

Cards with the lowest APRs

typically do not offer airline miles

and other rewards.

NOTE

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