What makes a good credit card? Personal finance experts will tell you it all depends on how you plan to use it.
Some cards have annual fees, others don't. Some provide cash back. Others provide rewards points. Some have high interest rates, others have lower rates. You get the picture.
If you are choosing from one of the many card solicitations you have received in recent weeks, it might be wise to first look at the annual fee. Before the 2008 credit crisis, almost no credit card imposed an annual fee. Most still don't but a recent survey from Bankrate.com shows 22% of cash-back cards are now charging an annual fee, up from 18% last year.
The same survey shows that more cards – 55% of the offers – provide some type of bonus for signing up. Even so, the bonuses aren't quite as generous as before and require more spending in order to redeem them.
Get some cash back
More than half the cards in the survey provide 1% cash back on purchases. Almost as many provide higher payout for certain categories of spending. For example, if you need a card to pay for gasoline, choosing a card with the highest cash-back amount for fuel purchases makes the most sense. Other cards may pay more when you charge groceries or restaurant meals.
When considering a rewards card, make sure you check to see how long you have to cash in the rewards. Sixty-five percent of the cards in the survey don't have expiration dates on their rewards, about the same number as last year.
"As long as you pay your balance in full every month, a rewards card is a good way to get some of that money back," said Greg McBride, Bankrate.com's senior financial analyst. "Make sure to find the card that offers the best fit for your lifestyle.”
For some, a low rate is important
If you pay off your balance every month – and you should – the interest rate might not be that important. But if you carry a balance, a low rate will save you money each month.
Some credit cards give you a low introductory rate for new large purchases. Obviously, the lower the rate and the longer the introductory period, the better.
The lowest rate, of course, is 0%. Fortunately there are several cards that offer an introductory 0% rate on new purchases. You should choose from one of those before considering a card that actually charges interest – even low interest – for the first six months.
With interest rates going up, credit card companies may adjust, not only their rates but their fees as well. Odysseas Papadimitriou, CEO of Card Hub, a credit card comparison website, says consumers need to look carefully at all fees associated with a credit card.
“The things that consumers care about and look at, like transaction fees, are going down,” he said in a recent interview. “The things that consumers are not paying attention to, like cash advance fees, are going up. When most people apply for a credit card, they don't expect to use it for a cash advance.”
Checking out fees is especially important if you are selecting a card designed to help you rebuild a damaged credit profile. All too often the cards in this category have the worst terms for consumers.
What not to do
The worst way to select a credit card is not to simply select one of the many advertising mailers that land in your mailbox. The best strategy is to think about what you want from a credit card and compare as many options in that category as possible.
Make sure the research material you consult about a particular credit card is up to date, since credit card companies change fees, interest rates and terms and conditions from time to time.