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How do I shop for a credit card?

Comparing offers before applying for a credit card will help you find the right card for your needs, and ensure that you’re not paying higher fees or interest rates than you have to.

34% of American credit card users shopped around for their last card

Financial Capability in the United States, FINRA Investor Education Foundation, 2009

Not shopping around could be more expensive than you think. For example, let’s say you have a $3,000 balance and can afford to pay $100 every month. If you have a credit card that charges an 18 percent annual percentage rate, or APR, you would pay $1,015 in interest and fees over the 41 months it would take to repay that debt. But if you had a card with a 15 percent APR, you would pay $783, and pay the debt off three months sooner.

The higher rate card would cost you an extra $232. If you pay only the minimum payment every month, it would cost you even more.

Here are four steps to help you choose the right credit card for you:

Pay Off Your Balance Each Month

You can avoid or minimize interest charges if you pay your entire balance each month by the payment due date.

1. Decide how you plan to use the card

Will you pay off your card every month, or do you plan to carry a balance? Or, will you pay off your balance some months and not others?

You may plan to pay off your balance every month to avoid interest charges. But the reality is the majority of credit card holders don’t: About 60 percent of Americans who have credit cards carry a balance.

If you already have a credit card, let history be your guide. Your credit card statement includes a summary of the interest and fees you owe each month, and the amounts you’ve paid throughout the year.

If you have carried balances in the past, or think you are likely to do so, consider credit cards that have the lowest APRs. These cards typically do not offer rewards and do not charge an annual fee.

If you have consistently paid off your balance every month, then you may want to focus more on fees and rewards. Compare the value of rewards you expect to receive (and use) each year with the annual fee you might pay.

Know Your Limits

Some credit card advertisements offer a credit limit “up to” a certain amount – but you may not qualify for the maximum.

Maxing out a card with a low credit limit can hurt your credit score, which could make it more difficult and more expensive to borrow in the future.

2. Know what to compare

Many credit card offers will contain the following information:

  • APR. Sometimes the offer will list several rates or a range of rates, and you won’t know the rate you’ll get until after you’re approved. Don’t assume you will get the lowest rate advertised. Would you still want the card if you had to pay the higher advertised rates?
  • APR for Balance Transfers. If you will be transferring your balance from one card to another, compare the interest rate you are paying now with the rate you’ll pay over the life of the new card – not just the introductory rate.
  • Penalty APR. Check for a penalty APR. The offer must tell you what the penalty rate is, what triggers it, and how long it would last.
  • Fees. Compare the fees listed on each card. Common fees include an annual fee, cash advance fee, and a late-payment fee. If you’ll be transferring a balance, take a close look at balance-transfer fees.

When Zero Isn’t Really Zero

Most credit cards charge a fee to transfer your balance. So even though a zero percent interest rate on balance transfers may sound appealing, it isn’t free. A one-time fee of three percent of the balance you’re transferring is common.

3. Shop around

Start your search for a new card at your bank or credit union. Your existing relationship may qualify you for a better offer. Next, compare the offers with others you’ve received at home or have seen online.

4. Ask your current card issuer to match or beat the offer

If you are happy with your service but think you’re paying too much in interest and fees, then see if your credit card issuer will match or beat the terms and rate on the new card you’re considering.

When you move your account, don’t close your old account right away. Continue to make at least the minimum payment while you’re waiting for the balance to transfer to the new card. Wait till you have a zero balance before you close the account.

If you decide to transfer your balance to a new card, and you feel you’ve made a mistake after reviewing your disclosures, you can generally change your mind if you act within 10 days after the credit card issuer sends you account opening disclosures. Contact the credit card issuer as soon as possible if you think you’ve made a mistake.

When Your Rates Can Rise

Credit card companies cannot raise your rate for the first 12 months after you open your account, unless:

  • You have a variable rate card tied to an index and the index rises
  • There is an introductory rate (introductory rates must last at least six months)
  • You are 60 days late paying your bill

Your rates can go up at any time after the first year, but the creditor must notify you about the change in advance.

In general, rate increases can only apply to new charges, unless you are more than 60 days late with a payment. If you are more than 60 days late, the higher rate can be applied to both new charges and your existing balance.

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