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How to Choose a Credit Card
(and Which of Your Existing Ones to Cancel)

The average American does not leave home without a credit card. In fact, on average we don't leave home without four of them. Yet, despite their popularity, credit card companies are the financial service that Americans are least satisfied with, according to a J.D. Power and Associates survey.

credit cards

Choosing the right credit card to meet your needs can save you hundreds of dollars in interest payments or reward you with bonuses for normal spending.

On a 1,000-point scale, credit card companies scored a satisfaction rating of just 658, which is lower than the ratings for mortgage services, brokerage firms and retail banks.

Part of this dissatisfaction may have to do with choosing the wrong card for your personal needs.

When used properly, credit cards can provide flexibility and a range of useful benefits for the cardholder. However, proper use starts with choosing the right card for you, and here are some things you need to consider.

1. Will you pay off the balance every month?

People who typically pay their credit card balances in full every month are known as transactors. If you fall into this group, you needn't worry about interest rates, but should choose a card that offers significant reward benefits, such as airline miles, cash-back incentives, or other retail options.

If you will be carrying the balance, a group known as revolvers, do not opt for a card that offers rewards. Why? Because they typically charge higher interest rates, and the amount you'll spend in interest will likely be greater than the reward's value. Instead, look for a card with low interest rates (the average rate on a standard variable-rate credit card is 12.7%, according to

2. Is the Interest Rate Fixed or Variable?

Experts say a low fixed-rate credit card is better than a low variable-rate card. Do be aware, however, that even fixed rates can go up when interest rates increase, but they will have to give you 15 days' notice.

3. Know the Key Numbers

Before signing up, make sure you know these key numbers:

  • The APR (annual percentage rate)

  • The annual fee (if any)

  • The length of the grace period (how long you have to pay your bill without incurring finance charges)

  • Penalties

  • Late payment charges

  • Over-the-limit fees

  • Interest rates on cash advances

  • Credit limit

  • Under what circumstances the company can raise your interest rate

credit card offers

Credit card companies are competing for your business with offers that can save you money -- you just need to keep your eyes open for them.

4. APR is NOT Everything

You must take into account all the variables above when choosing a card. Also recognize that some cards offer low teaser rates, such as 0 percent interest for the first six months. These are a good option, but be sure you know what will happen after the intro rate expires.

5. Read the Fine Print

Many cards have hidden fees, such as late payment charges, balance transfer charges, and cash advance charges. So if you are planning to use a card for a cash advance or balance transfer, paying special attention to the associated fees is essential.

Many cards can also raise your interest rate if you have late payments, and this information may be buried in the fine print.

6. Watch out for Fee-Harvesting Cards

Fee-harvesting cards often target people with bad credit, offering low-limit cards. However, a credit card with a $250 limit may then charge a $95 program fee, a $29 set-up fee, a $6 monthly participation fee, and a $48 annual fee -- which leaves the consumer with $178 of debt and only $72 of credit, according to a new report from the nonprofit National Consumer Law Center (NCLC).

7. Compare Other Features

Aside from rewards programs, some cards also offer travel insurance, rebates, purchase-protection plans, or extended warranties. If any of these items are important to you, you'll have to decide if their value exceeds the extra you may be charged in higher interest rates.

8. You Can Ask for a Lower Rate

If you have a credit card right now that has a high interest rate, you can often get the company to lower it just by asking. According to a survey conducted by the U.S. Public Interest Research Group, 56 percent of consumers who asked for lower rates got them. The APRs on their cards dropped from an average of 16 percent to 10.47 percent, according to So you could easily save a significant amount of money every year just by making this one phone call.

Recommended Reading

The 10 Dumbest Everyday Mistakes People Make With Their Money

Online, Phone, U.S. Mail or In-Person: Where is Your Credit Card and Personal Identify Safest?


MSN Money Ask for a Lower Rate

ABC News October 15, 2007 November 8, 2007

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