Choosing a Credit Card

Before you choose a credit card, it's smart to compare several different cards to calculate what using credit will cost you if you don't always pay your full outstanding balance each billing period.

Here's a checklist of the important things to look for:

  • A low annual percentage rate (APR) reduces the interest you owe if you don't pay your outstanding balance in full and on time. Remember that low introductory rates will probably increase after six months.
  • A grace period gives you a minimum of 21 days from the day your bill is mailed to make your payment before interest begins to accrue, provided you paid the previous balance in full and on time. Some credit cards don't offer a grace period and charge interest from the day you make charges on your account.
  • Low or no annual fee for the right to use the card.

The cost of other charges, like late payment fees and over limit fees, can add to the total cost of using credit. But these are fees you can avoid by always paying at least your minimum payment on time and not charging more than your credit limit.

Be careful about cards that offer extra services and features such as cash rebates, frequent flyer miles, extended warranties, convenience checks, and so on. These programs may have higher costs and fewer benefits than you realize.
Avoid cards with transaction fees or service fees. You don't want to owe a fee just for using the card.