Wading Through Credit Card Options
By Kristi Vaughan
Looking for a new credit card? Get ready for an avalanche of choices. Between no-fee, low-fee and high reward, how do you decide what is best?
In effort to woo customers of all sorts, credit card companies have developed a plethora of cards designed to suit nearly every need and budgetary habit.
New on the block are very high fee, high reward cards aimed at those big spenders who don't mind annual fees exceeding $1,000 in return for free airline and hotel upgrades, among other things. And, there are the perennial favorites, the low interest, and no fee cards that draw balance-carrying consumers in with promises of lower rates on all balances transferred to the new card.
Whether you get what you think you are getting - and whether it is best for you -- can depend greatly on how carefully you read the fine print.
As the Federal Trade Commission recommends in its Choosing and Using Credit Cards pamphlet, the card that is best for you depends on how you plan to use it.
The following is an overview of the different types of credit cards available and some of their salient features. Additionally, websites like CreditCardGoodies.com and CardRatings.com offer information and comparisons between different cards currently on the market.
Rewards Cards/Cash Back
Cash back cards give you money back in return for using the card. Read the fine print before you signup for a card. Cards can have limits on how much of your spending is rebated and whether all of your spending qualifies. And, if you are charged an annual fee for the card, you'll want to make sure that fee doesn't exceed the amount you are likely to get back.
Air miles
Credit cards that reward spending with mileage points that can, in turn, be redeemed for airline tickets are offered for travel on specific airlines and for travel on a range of airlines. Check with the credit card issuer to see which option is offered by your card. Because it can take quite a bit of spending to earn enough points for a ticket, these cards are best suited to people who spend a lot and, very importantly, pay off their bills regularly. Failure to pay the balance every month can mean costly interest and fee charges that can more than equal the cost of a ticket. Add in an annual fee charged by the credit card company and you may well wonder why you didn't just buy the ticket. An article in the September 2004 issue of CardTrak(r) compares the air miles offers of several airline/bank cards with the cost of purchasing a transcontinental flight during a prime holiday week.
Other rewards
A relatively new take on the airline miles cards are cards that offer you points towards the purchase of a new car - from the manufacturer sponsoring the card, of course. So too are there cards that give you discounts at amusement parks in return for a certain number of points or gift certificates that can be used at hotels, restaurants or even Broadway shows. Again, it can pay to estimate the number of points you are likely to accumulate and weigh this against the value of the reward.
Is it really a reward?
To help you determine whether a reward card is truly a reward, the credit card consumer site CardRatings.com offers several calculators including comparisons between rewards and low rate and airline miles and low rate. And be careful to note the annual percentage rate charged for your rewards card. If you are likely to carry a balance, that rate can be significantly more than you are getting as a reward.
Rates and Fees/Low Rate
Low rate credit cards can be just that-cards that charge a relatively low annual percentage rate on unpaid balances. Or, they can be cards that charge a relatively low introductory rate but then, after 6 months or so, raise the rate. In a classic case of "buyer beware," read the fine print before you assume that your rate is the low one advertised on the envelope of that credit card offer.
Annual fees
Many credit of the credit cards that offer rewards, and sometimes low annual percentage rates, also charge annual fees for use of the card. This is one way the credit card companies can make money. Whether the fee is worth paying, considering what you are getting in return is pretty much a matter of mathematics. Calculators comparing annual fees and low interest rates can be found on Motley Fool and CardRatings.com.