I have never advocated credit cards. They are short-term loans that can often be a financial trap. However, I do live in reality and know that credit cards are a necessary method of buying large ticket items that must be paid for immediately. When choosing a specific credit card, sometimes it is very difficult to determine which credit card should be acquired. As always, the best bet is the cheapest. But finding the cheapest may not be as easy as it sounds. All credit card companies offer a very low introductory “teaser” rate which will increase after the introductory period. Unless a person knows how to read the fine print, the regular rate may end up being a lot more than anticipated. And once an item has been purchased with a high-interest credit card, it is too late to cancel it.

In looking at the numerous offers that are mailed to financial institution customers on a regular basis, there are several steps that the customer can take to ensure that he/she is getting the lowest credit card possible. There are four main things to consider when applying for a credit card:

» Annual fee: This can range from 0 on most credit cards (like Visa or Discover) to $50 per year (or more) for cards like American Express. Get the card with no annual fee.

» Late-payment and other fees: If the card company does not get at least the minimum payment on the charge, the company can impose a late fee which is often $20 to $30 per month. Be aware, at the time the credit application is made, what type of penalty is imposed for late payment and when those penalties start being applied before the card is obtained.  And by all means, at least the minimum payment should be made each month.

» The annual percentage rate: The rate right now for good credit averages around 10 percent and can go as high as 20 percent for those with bad credit. The credit card companies are charging their average customers 15 percent interest. A good credit score helps the customer get the lowest interest rate possible. However, if the customer has a bad score, credit card companies can and will charge as much interest as they feel is necessary to compensate for the risk of a customer’s potential default on the loan. If a customer pays the full card balance each month, the interest rate is irrelevant. No interest will be incurred. However, if the card has a balance that is rolled over to subsequent months, the interest rate can be very important.

The grace period:  The “grace period” is the length of time a customer has to pay for new purchases without incurring finance/interest charges. The typical grace period is 25 to 30 days but some cards have no grace period. The card company will start charging interest as soon as the purchase is made. It is wise to apply for a card with at least a 25 day grace period.

One other word of caution, as tempting as it may seem, avoid rolling over balances from one card to another. This behavior alerts card companies that there may be a financial problem and the interest rate charged on the credit card may be increased.

An increased interest rate is a surprising development. Card companies have the right to raise interest rates on an existing card as long as enough notification has been attempted. I use the term attempted because many people think that a letter from the credit card company is junk mail and don’t thoroughly read it. The surprise comes when the balance due suddenly has a much higher interest payment required than expected.