Many people put more effort into ordering from a fast food menu than they do choosing their primary credit card. Since a credit card can often turn into the fast lane to debt or excessive overspending, it’s vital that you have a checklist of measures to use in making the right choice.
Maintaining good credit can have great bearing on some of our most important desires, such as buying a home, buying a car, starting a business, and getting lower interest.
There are a number of important personal habits and considerations that should be used when finding a card to best serve your needs. The following is your fail safe method to finding the right credit card for your personal needs.
First, check your credit score. A free copy of your credit score can be accessed at Equifax, Experian or TransUnion, the three major reporting agencies. Because the best cards require very good credit, knowing your score in advance will help define your field of selection.
With credit score in hand, it’s time to consider spending habits. Basic questions to answer are will you pay the full card balance each month or carry a balance? Will this card be used for most household purchases, all large ticket items or only for emergencies?
Annualized percentage rate is the crux to how much you ultimately pay for stuff bought using a card and often is the depth gauge to overall debt level. Cards come with either fixed or variable interest rates, and each has advantages. Preferably, start by choosing a card that offers 0% interest rate for the first 12 months.
Fixed rate cards are just that with the annual percentage rate set at a fixed level. National averages on fixed APR cards range from 16.54% upward to 22.03%. However, credit card companies have the right to increase fixed interest rates at any time per the card agreement.
Variable rate cards have interest rates often stated as an index plus margin. For example, the actual rate charged might be „index + 11.99%“. If the current prime rate index is 4%, the card APR will equal 15.99%. For most people, tying the interest rate to Federal Reserve decisions can be tricky, but it can also be advantageous depending upon how the card is used.
Another important factor in credit card choice is the credit limit, or how much you can charge before reaching the cap. You want a limit that is high enough so you’re not always close to the maximum, especially if you intend to carry a balance. Carrying a balance at the max or charging close the limit cap can have a negative effect on your credit score.
Also, review the card issuers method of computing interest charges. Generally, the average daily balance method is used. The monthly rate is computed by adding all daily balances together and dividing by the number of days in the billing cycle. Using this method, the more days in the cycle will give a lower interest charge. For example:
- If average daily balance is $225.00 and billing cycle is 25 days, interest charged is 225/25 = 9%.
- If average daily balance is $225.00 and billing cycle is 30 days, interest charge is 225/30 = 7.5%.
Equally import with interest rate calculation is to know the fees and penalties that can be tacked on to your monthly payment. Transaction fees for transferring a balance from another credit card are common, as are fees charges applied when you pull a cash advance from an ATM using your credit card. Here are common fees to give thought to:
- annual fee you pay annually for the privilege of using a credit card
- balance transfer fee is usually between 3% and 4% of amount transferred
- cash advance fee between 2% and 5%
- foreign transaction fee is a charge of 3-4% â€‹
Also, be particularly sensitive to late payment fees. While our intentions are to always make the monthly payment on time, it doesn’t always work out that way. Penalties for missing the payment due day can run from $35.00 to $50.00.
Finally, list the incentives you want a card to offer. Do you need a rewards card paying bonus points every time you make a purchase? If so, will the point accruals be used for travel, merchandise, cash back, or a combination of these? Do you need a card that is geared toward business use or just for everyday purchases? Do you simply need a low interest rate card?€‹
The bottom line is to find a card that will most closely cover you personal spending habits. All of these checkpoints can be covered in short order. Begin by listing your personal needs, highlight your must have requirements, and use the internet to review cards meeting your criteria.
At the Speed of Plastic
The first swipe. You just received your fresh new credit card, and you are ready to use it. Anticipation welling up inside of you like a geyser imagining the things you will purchase. You are already thinking about that second credit card. But, did you know it could take a long time for you to get the card processed?
First, let's take a look at the processing stage of the application. This will give us an insight into why it takes a while for you to receive your next credit card.
The first stage in the processing of a new credit card is an analysis by the bank of prior accounts with other companies. At this point the bank will take an in-depth look at the other accounts along with their personal records. They will judge the length of time it took for you to receive the prior card(s). This is a method the bank uses in estimating your actual worth. Most people do not realize that the bank actually categorizes the applicants into subgroups. These subgroups allow them to estimate the risk involved in dealing with the consumer (whether you are a good payer, or a poor one).
If the applicant is found to be a poor payer during the processing stage, the bank usually requires the applicant to supply them an alternate address where the bills can be sent. This is a method the bank uses to ensure that you pay on time.
The Second Stage - Unpaid And Delinquent Balances
The next stage of the process involves the bank researching to see if you have any unpaid balances or other credit cards processed with other banks. This is to check how many cards you are able to apply for and if you will be able to meet their payments (the bank) once you have passed the processing stage. This is known as a method of counter-checking to see if you have the ability to pay for multiple cards (insuring they receive their payments).
Due to changes in the global marketplace, and the US Patriot Act your identity will have to be verified. This is the last part of the process (and a very important one). Each bank has certain standards and requirements set in place requiring certain documentation to prove your identity. The key here is to be patient and understanding. The banks and financial institutions are under a certain level of scrutiny when it comes to financial transactions, and the issuing of a credit card is no different. Supply the information and keep a positive mental attitude during the process.
In conclusion, there are a few things that occur during the processing of a new credit card request. To summarize, a bank will research prior accounts, check and see if there are any unpaid or delinquent balances (with other institutions), and will need to verify your identity. Once you cross this barrier, you will be well on your way to a new credit card.