It’s that time of the year again. It’s often around the first of the year that credit card users examine finances and decide it’s time to change credit cards or at least pay some off and get rid of most of them. We make resolutions to save more by cutting expenses.
Because of this, many credit card offers start showing up in your mailbox offering you the next best deal. But the best credit card deal for you depends on your financial situation and FICO score. Issuers make every card seem like the best on the market. Advertising touts their low rates and benefits; but you should look at terms and conditions before applying.
Know your situation and pick the card type best suiting you. Credit cards are not “one-size-fits-all.” You must determine your situation and shop for the card that suits your specific needs best.
Credit card offers you receive are generated by your credit history: The three main credit bureaus gather information on debt we carry, who is exceeding the debt-to-credit ratio by more than 30 percent, who misses minimum payment deadlines, loan application history, etc. Equifax, Experian and TransUnion are the bureaus turning these histories into marketing lists and selling them to credit card issuers. Issuers decide which credit card suits you and mail offers to you.
Before applying, check your credit score to know the offers you might expect. Mid-700s FICO scores are good and you can expect to receive lower interest rate card offers. Scores under 640 are too low for normal credit cards and you will have to look at other options (secured cards).
Rewards Card: If you are disciplined enough to charge only what you can afford to pay off each month you’ll have “excellent” to “good credit” and be a candidate for a “rewards card.” Cash back cards won’t make your rich, as they pay a penny per dollar spent, but this adds up. Some offer generous cash bonuses for taking and using new cards. They have slightly higher interest rates so pay them off each month.
Low Interest Card: If you carry a balance month to month, you should not be concerned with rewards but in paying off balances quickly. For you, getting a card with the lowest interest rate is the most important consideration. Lowest interest rate cards are given only to applicants with “good” to “excellent” credit scores.
Balance transfer: Transfer multiple cards’ balances onto one card offering attractive introductory rates and pay off the total before rates go up. Many issuers offer 0 percent interest on balance transfers for substantial periods. Ensure the interest penalties you save are more than the fee you’ll pay to transfer the balance and this is the card for you. When comparing balance transfer cards, check ongoing interest rates. If you can’t pay off the balance before the offer’s introductory period ends, you’ll pay the ongoing interest rate. Also, card issuers might accept only portions of amounts applicants want to transfer – depending on their credit limits – as they want to leave room for new charges.
Secured cards: If your score is less than FICO 640 and you can’t qualify for a regular credit card, a “secured card” is your best option. These require security deposits which you charge against and pay back. The issuer reports payment history to the credit bureaus, eventually raising your credit score (if you pay on time and keep debt-to-credit ratio lower than 30 percent). However these cards can have huge fees and interest rates. Be sure to read the fine print before opting for this type of card.