Pick A Card, But Not Just Any Card
By Rich Lunsford
Spring 2007
Receiving dozens of “pre-approved” credit card offers in the mail can be flattering. But they may leave you wondering which offers are the real deal and which are just smoke and mirrors.
No single credit card is best for everyone. Military members may benefit from certain features more than others. A close look at the interest rate, fees and rewards should help you pick the offer that best suits your needs.
Read The Fine Print
Most people shopping for a new credit card look at interest rates first, so most credit card offers highlight their rates on the front of the envelope. Lower interest rates are generally better, but if two offers have the same interest rate, a closer look may show they are actually quite different.
Variable vs. fixed rates. Find out if the annual percentage rate (APR) on the card is variable or fixed. Variable rates usually start lower but can go up or down over time, while fixed rates may start a point or two higher than variable rates. Even if you have a fixed rate, most credit card companies have the right to change your interest rate.
Other interest rates. Pay attention to interest rates for services such as cash advances or balance transfers; they may be higher than the APR for purchases.
Add Up Fees
Do not let low interest rates distract you from other costs of doing business with a particular company. If you forget to check the fees section of the credit card disclosure, you may find that your interest savings do a disappearing act right before your eyes. All credit card lenders charge various fees. Knowing all you can about the fees is key.
Annual fees. First, find out if the card has an annual fee. Some cards charge an annual fee of $50 to $100, but it can be worth the cost if you will use the card often enough to earn valuable rewards. If not, look for a card with no annual fee.
Late payment fees. Fees for delinquent payments can be extremely costly. The best policy is always to pay your bill on time. But if you are the forgetful type, you will want to compare these fees closely.
Other fees. Also check into “over-the-limit” fees that occur if you spend beyond your designated credit limit. Look at “balance transfer fees” if you are considering moving an existing balance to the new card.
Make Sure You Can Reap Rewards
Credit card rewards programs are more popular than ever. Many cards come with an incentive – airline miles, free gas, cash back, shopping discounts and more. Knowing the rules and limits of each program is essential to making sure you actually enjoy the rewards you are paying for.
Learn how points are accrued and how often you will be able to use them. Do you have to spend money in certain places? How much do you have to spend before you get a reward worth having? Are there reward restrictions, such as blackout dates for air travel or a capped limit on rebates? Do you have to carry a balance to earn higher reward points?
It’s tempting to rack up points to earn rewards. However, avoid charging so much on the card that you can’t pay off your balance. It’s best to pay off your balance each month.
Don’t Forget About Extras
Even after looking for a low interest rate, low fees and a great rewards package, you may still have several cards to choose from. Fortunately, there are even more factors you can consider before deciding on a credit card.
Customer service. Choose a company that responds to your needs, whether online or by phone.
Accessibility. Find out how easily you can access your account and bank online.
Added protection. Ask whether the company offers additional features, such as debt protection.
If it is still a toss-up among several cards, the benefits of choosing a company you know and trust may be the ultimate tie-breaker.
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Rich Lunsford is a CERTIFIED FINANCIAL PLANNER™ practitioner with USAA Financial Planning Services, one of the USAA family of companies. Lunsford has 11 years of experience in the financial services and insurance industry. USAA is a diversified insurance and financial services organization that has served the military community since 1922. USAA Financial Planning Services refers to financial planning services and financial advice provided by USAA Financial Planning Services Insurance Agency, Inc. (known as USAA Financial Insurance Agency in California), a registered investment adviser and insurance agency, and its wholly owned subsidiary.
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All Credit Cards Are Not Equal
- Read the interest-rate fine print: Is it variable or fixed?
- Add up fees such as annual, late payment and over-the-credit-limit fees.
- Understand program rules and limits so you can reap the rewards.
- Ask about extras such as added protection and accessibility.
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Credit Tips For Deployed Servicemembers
- Place an “active duty” alert in your credit report to help protect yourself from identity theft. The alert requires creditors to verify your identity before granting credit in your name.
- Military members receive lower interest rates on credit card balances while deployed. Notify your bank or creditor in writing.
