Personal finance

Steps to Choosing The Right Credit Card

Despite common concern over credit cards invariably leading to debt, having a credit card and using it responsibly is vital to developing a solid credit history. Good credit not only allows people to acquire mortgage loans, business loans, or bank loans, certain credit cards provide consumers with added benefits like cash back, free flights and hotel stays, and reward gifts.

With plenty of credit cards to choose from, here are five steps to picking the most beneficial card for your lifestyle:

1. Spending Habits

When narrowing down your credit card options, determine your intent with the card. Will you pay off the card's balance every month without fail, or do you anticipate carrying a balance from month to months? Will the card be used for everything, just for emergencies, or for large purchases?

If you are paying the bill in full each month, then the interest rate of the card will not be an issue. Instead, look for cards with no annual fee.

If you are going to carry a balance, look for a card with the lowest interest rate.

As a go-to-card, look for a card with the most generous credit limit and solid rewards program.

As an emergency credit card, your best bet will be a no-frills cad with a low interest rate and low fees.

"Since there are so many cards available," Chris Mettler of states, "people have to decide what is most important to them and their needs."

2. The Interest Rate

On a credit card offer, the interest rate appears as the APR, which is the annual percentage rate. The APR can either be a fixed rate or a variable rate that is tied to another financial indicator, usually the prime rate. With a variable card rate, the interest will fluctuate while a fixed-rate will keep the interest stable.

3. Credit Limit

The credit limit is the amount of money that the credit card issuer is willing to lend you. Depending upon credit history, the lender can offer you anything from a few hundred to tens of thousands of dollars. Most credit card companies tend to start the borrower out with a low number, steadily increasing the number as the borrower pays their balance off on time and in full. Additionally, you can ask your credit card company to give you a larger balance. However, in order to establish and maintain good credit, you do not want to be maxing out your credit cards.

4. Fees And Penalties

Many credit cards come with hidden fees and penalties listed in the fine print. Common charges include transaction fees, balance transfers, cash advances, or for making a payment on the phone.

Look for cards with reasonable fees, and do not pay more for a rewards program. There are plenty of cards that offer free rewards.

5. Incentives

Many card issuers offer reward programs to their customers to interest them to use the card. Look for programs that offer flexibility such as cash or travel, and rewards you will actually use and can be easily redeemed.

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