Things to consider before applying for a credit card

We are living in an age where credit is an important part of spending. Therefore credit cards remain an important part of personal finance and banking strategy of retail banks. A credit card used responsibly and chosen for the right reasons can provide the consumer with many benefits.

The credit card market is highly competitive. The many 0% introductory rate credit cards that can be found is proof of this. It may be tempting to apply for the credit cards with 0% offers or the credit cards that presents the best deal today. However, to select the best credit card following factors should be considered carefully.

The most important item to consider before applying for your credit card is to determine your expected usage patterns. The most important questions you should ask are,

Will you use the credit card regularly or once in a while?

Will this be your main credit card or a second or even a third credit card?

Will you pay your bill in full at the end of each month or carry over balances to the next month?

Based on your answers to the above questions, you should determine how the following points affect you.

MasterCard, Visa or American Express.

The most popular credit cards are MasterCard and Visa. These are accepted at almost all retail outlets that accept credit cards. American Express on the other hand charges the retailers a higher rate than MasterCard or Visa. Therefore a fair number of retail outlets, especially small ones do not tend to accept American Express.

American express maybe good as a second credit card, but if you intend to pay for the majority of your purchases with a credit card and wish to only have single credit card, consider MasterCard or Visa.

Interest Rate or APR.

Usually referred to as the APR in your credit card terms and conditions, the Annual Percentage Rate (APR) is very important if you do not plan to pay your credit card in full when you receive your bill. Simply put, APR is the rate at which you pay interest on the balances on your credit card.

It is common for the applicable APR to vary for purchases, balance transfers and cash advances. The credit card provider also has the right to change the rate once you have made an agreement. However, sufficient written notice must be given to the credit card holder.

Fees.

Fees come in many forms. A credit card provider may charge an annual fee for the services they offer. If so it must be considered whether the annual fee justifies the level of benefits offered in return. You should never pay for the privilege of just having a credit card. Fees for late payments, missed payments, returned payments and going over the credit limit are also common. Be sure to check what the fees are charged for and how much they are.

Benefits and Rewards.

If you plan to use your credit card regularly, be sure to check whether they offer a rewards programme. These could be air miles, high street vouchers, a donation to a certain charity or simply cash back. Determine what works best for you. If you are relying on high street vouchers, ensure they are vouchers that are of use to you.

Check the rate at which rewards are earned. Some credit cards may have a simple formula like one reward point for each pound you spend, while others may have complicated formulae based on where you spend the credit card.

Introductory Offers

Many credit card providers offer introductory offers to get your custom. Be sure to check these introductory offers benefit you in some way, and that you are not paying for it once the introductory period has finished. Be sure to check that the APR, fees and rewards stay competitive even after the introductory period.

Introductory offers typically could range from two or three months to even up to two years. 0 % interest on purchases remains a popular introductory offer. 0% interest on balance transfers is also common. However, be sure to read the terms and conditions as balance transfers usually contain a fee. Some credit cards also provide additional rewards during the introductory period, but there may be a cap on this.

Credit Limit

The credit card provider will determine your credit limit usually by assessing your credit rating and earnings. You may get a credit limit varying from few hundred pounds to over ten thousand pounds. Usually, the credit limit can be increased once you have had the card for a certain period.

It is important to remember that the credit card providers will generally allow you go over the credit limit and charge a fee for this. So monitoring whether you are below the credit limit is your responsibility.

Grace Period.

Grace period is the period you are allowed for the bill to be paid. This typically tends to vary between 21 days to 28 days. Availability of fully cleared payment by the end of the grace period is required to avoid any late fees.

Support and Access

Another important point to consider is the access provided by your credit card provider. This may be in the form of on line banking, smart phone apps and telephone banking. Ensure that this meets your requirements and the methods are secure.

Many factors should be considered when selecting a credit card. The above lists some important points to consider. You are liable to clear payments you make on a credit card. Late payments or no payments may affect your credit rating. Be sure to take professional financial advice if you have any questions.