Like in dating, choosing a credit card is all about finding a perfect match. The ultimate decision has to be finding a card that is compatible with your lifestyle. How can you be certain that the credit card you selected is the best for you? Before making that commitment, here a list of things you need to check.

• What is your purpose of getting a credit card?

Before beginning your search for available credit cards, one important thing you must do is to decide what you’ll be using the card for.  This will inform the approach that will lead you to finding the perfect credit card for your use.

For example, when looking for a card to cover regular expenses, a primary consideration should be a card with lower interest rates. You may also consider a card with generous rewards that will help you save through points or cashback.

• Check your credit score

Your credit score determines the cards you will be able to obtain. To qualify for credit cards with the best reward programs, you need higher credit scores and for a significant period of time. Most credit companies consider your debt-to-income ratio and financial history over a five-year period.

In case you are looking to rebuild your credit score, applying for a secured credit card may be helpful. A secured credit card requires a cash deposit by the cardholder as collateral in case the cardholder is unable to make payment. Secured cards help the holders build good financial habits as they guarantee on-time monthly payments. By using secured cards, you show the issuer that you are able to handle credit.  

• Analyze your spending and repayment habits.

In relation to your spending habits, find a card that provides rewards for the purchases that you make. If you will use your credit card on nearly everything you purchase, and you pay off the statement at end of the month, consider getting a card that will provide you with a flat-rate cash back reward at the end of every month. Cashback are the most flexible of all rewards because they are actual dollars that can be used on anything. Besides, the cashback cards also provide you with the same percentage of cashback on any purchase you make.

In terms of your repayment habits, choose a card with an ongoing low-interest rate if your plan is to carry a balance on your credit card. This interest rate is known as the annual percentage rate (APR). If you plan to quickly pay off the balance after making a purchase, then you can go for cards that offer an introductory 0% APR. But take note that late payments are likely to trigger an increase in the APR.

In case you plan on transferring a balance from other cards you hold to a new one to save on interest, consider the balance on the transfer fee, the type of debt to be transferred, limit on the transferable debt to the card, and the initial rate of APR as well as the subsequent rate after the expiry of the initial one.

• Other important credit terms and calculations to consider

• Computing Balance for Purchases

Different credit card companies use different methods to calculate finance charges. The methods include daily balance method, adjusted balance method, previous balance method, and average daily balance method. Before choosing a credit card, ensure that the credit card offer explains the method the company uses to calculate the balance on which it applies the APR. 

• Grace period

Grace period refers to the interest-free period duration between the date of purchase and the bill due date. This option is usually available only to those who don’t carry a balance. If your plan is to pay your bill in full at the end of each month, ensure that you have a grace period. Not having a grace period implies that you’ll pay your interest from the date you made your purchase. Grace periods also do not apply to cash advances or convenience checks as these start accruing interest right away and at higher rates compared to purchases.

• Annual Fees

Some credit card companies charge an annual flat fee besides the interest rates and other charges for using their card. In case you pay off your balance monthly, you should opt for a card with no annual fees. In case you carry a balance, then a card with an annual fee and low-interest rates would be preferable compared to a card with no annual fee but a higher interest rate.

• Transaction Fees

Ensure that the credit card company discloses any fee’s that they will impose for using the card to make purchases, balance transfers, or cash advances.

• Over-the-limit fees

The CARD Act provides that a card issuer must get you to deliberately allow them to charge you over-the-limit fees. This implies that you agree that the card company authorizes transactions that will put your account over the limit and then apply their fees. To avoid these charges, do not sign into this option.

• Penalty fees

Many credit card companies charge penalty fees for late payments and payments returned for insufficient funds. However, the CARD Act limits the penalty fees to a maximum of $28 for the first violation and $39 for the second violation in case it took place within six billing cycles of the first violation.

In Summary

The perfect credit card should be compatible with what you plan to use it for, your credit score, how you spend your money as well as your debt repayment method(s). You need to know your financial habits. Understand the interest rates, rewards, benefits and the offers that the card provides. Overall, the best and right credit card should help you realize your financial goals.