Your priority at this point in your evaluation is to find the available credit cards in the market that best meet your needs. You can save a lot of time during this activity by quickly eliminating any options that are unsuitable because they don't meet your key requirements. For example, if you want a card that offers the maximum grace (interest free) period then any cards where interest is incurred as soon as a purchase is made can be ruled out immediately.
As well as there being different types of credit cards - Visa, MasterCard, pre-paid cards, etc - there are also many different types of card within the same credit card company. Knowing the difference can help you choose a more beneficial one for your needs. Secured cards are usually the best option for people with a limited or poor credit history and require a security deposit. The size of the deposit dictates the amount of the credit limit. If you have a good credit history and a regular income then regular, unsecured cards will meet your needs. These don't require a security deposit and higher credit limits are available.
If you qualify for a premium card, such as gold, silver or platinum, you will be able to take advantage of the highest credit limits to make significant purchases and avail yourself of additional features such as travel insurance, warranties on purchases and emergency services options. One of their most popular rewards schemes is the award of frequent flier miles for every dollar you spend. Depending on your spending habits, you might accrue enough points to pay for your airfares, interstate or abroad. However, these cards often carry a high annual fee, so if you are not a big spender, then you might not be able to justify the extra expense. It's also a good idea to determine whether you really want or need these extras, otherwise a basic card with a high credit limit might be a better option for you.
Aside from annual fees, you will want to know what the credit card's annual percentage rate (APR) is. Some credit cards will have a different APR (interest rate) for purchases, cash advances and balance transfers. Cash advances and balance transfers tend to carry higher APRs than purchases. It is important to investigate this if you plan to make either of these types of transactions.
Some credit cards might offer a low introductory APR to attract customers, or a delayed APR, meaning that you don't need to pay interest until a specified time. Check what the APR will be once these “promotion periods” are over. The APRs might be significantly too high for your liking.
APRs might be fixed, variable, and tiered. Variable rates are often tied to the country's prime rate or Treasury bill rate. If you are looking for more certainty, you might want to opt for a fixed APR. But beware that even fixed APRs can change, though the credit card company will need to notify you before the change. In the case of tiered APRs, a higher rate might be applied to balance amounts over a certain limit. For instance, once your balance exceeds $600 your APR might rise by 2%. If this is the case, you will want to assess whether this higher APR will significantly affect your ability to make repayments, or whether you plan to keep your monthly roll-over balance to a minimum, meaning you will be largely unaffected by the tiered approach.
If you are a habitual “late-payer” of bills, then you will want to take notice of any penalty APRs. These will take effect if you make continuous late repayments within a specified time period. They will also stay in effect indefinitely. Similarly, the grace period is another important feature you will need to consider. Some credit card companies may offer you a grace period, such as 25 days, before you are charged any interest on new purchases. If you don't expect to repay the balance in the given time frame, then you might find yourself hit with interest charges on previous unpaid balances, as well as interest charges with immediate effect on new purchases.
Grace periods are great for people who can make full repayments within that time, thus effectively giving them fast and efficient interest-free access to cash without having to carry large sums around with them. Ideally, the longer the grace period, the better. One important point, however, is that grace periods usually don't apply to balance transfers or cash advances.
One of the most confusing areas when choosing a credit card is determining the finance charge. Some credit card companies don't have a finance charge, as they require you to pay the total balance of your card every month. Other cards allow you to carry your balance over into other months, but they charge you on this, which is called the finance charge. There are many different ways that a credit card's finance charge can be calculated - these include varying billing cycles (although normally over one or two cycles), using the average daily balance, adjusted, or previous balance; and including or not including new purchases. Once the balance is determined, the APR is then applied to it to determine the finance charge for that particular billing period. Finance charges can add considerably to the expense of your card, so make sure you know on what basis the charges are levied.
Generally speaking, the most expensive calculation method uses your previous bill's balance to calculate the finance charge. The most common and equitable method is to use the average daily balance (the total of each day's balance divided by the number of days in the billing cycle), and the least expensive calculates the finance charge on the adjusted balance after you've made your payment.
Most of the time the best one to go for is a card that offers you varying billing cycles, especially one-cycle billing. You can usually benefit from a lower finance charge if you are on a one billing cycle agreement. There are additional ways to receive a lower finance charge if you incorporate a one-cycle billing method, including using whatever your average daily balance is, minus any new purchases.
Another way that credit card companies work is by having a minimum finance charge. This can be quite costly, especially if your finance charge would normally be less than the minimum one. Thankfully, a minimum finance charge usually only occurs when you carry over a balance from one billing period to the next one, so it is wise to pay off the card as soon as the bill comes in.
Tip: Make sure you know exactly what the finance charge is, and how it relates to the other aspects of your credit card (monthly payments, balance transfers, etc).
Much like there are varying finance charges and interest rates attached to credit cards, so there are also varying fees that you need to be aware of as well. You might be aware of some of the better known ones - annual charge, late payment, etc - but there are probably a host of fees that you're unaware of. These can add a significant amount to your credit card bill.
Tip: Always look at the credit card agreement and make sure you understand what fees are attached to the one you're looking at choosing. If unsure, speak to a representative of the company, or use a Citizen's Advice Bureau for unbiased advice and help.
We all know that, despite our best intentions and planning, there will always be times that we find ourselves short of money. If you have a credit card that offers a cash advance, this can help alleviate this problem - just make sure you know the features and costs. Cash Advances are subject to fees, limits and higher interest rates and may only be available over the counter at your financial institution.
Tip: Read your credit card agreement and make sure that you know how a cash advance is paid; what it costs; and how it is paid back.
A credit limit is the amount you can spend on the card. Some cards have monthly limits, others are more lenient and allow you to spend up until the limit is reached. However, be careful - some credit card companies automatically raise your credit limit when you approach your existing one, particularly if you're a good payer. Also be aware of over-the-credit-limit fees that apply if you exceed your credit limit.
Tip: Always be aware of what your credit limit is, and try to keep from reaching it. Going over a credit card limit will result in often-costly fees.
When you were considering your requirements in a credit card it's likely that you singled out certain factors such as type, card provider, APR and finance charges as being of major significance. As with so many other products, the more features offered, the higher the associated costs.
Buyz123 has created a checklist containing examples of major features; you can work from this checklist when evaluating how well various credit cards meet your personal needs:
Features Checklist
Essentials
- Available credit limit
- Standard credit card or pre-paid
- Grace period
- Annual Percentage Rate (APR)
- Finance charge
- Billing cycle/period
- Cash advance, transfers
Basis
- Standard Non secured
- Prepaid
- Secured
- Premium
- Debit Option
Type
- Visa
- MasterCard
- American Express
- Diner's
Credit Card Provider
- Bank
- Financial Institution
- Credit Company
Annual Percentage Rate
- Fixed
- Variable
- Multiple
- Tiered
- Penalty
- Introductory
Credit Card Features
- Cashback
- Rebates on purchases
- Air Miles or Frequent Flyer promotions
- Additional warranties
- Car rental or travel accident insurance
- Credit card registration in case the card is lost/stolen
- Unemployment or injury cover
- Insured against fraudulent purchase
Fees
- Annual fee - The basic account administration cost
- Cash advance fee - Usually either a flat fee or percentage of the advance
- Balance transfer fee - The cost to transfer a balance from one card to another
- Late payment fee - Incurred when the due date for payment is missed
- Over the credit limit fee - Go over your limit and charges will kick in
- Credit limit increase fee - Incurred when you need to raise the agreed limit on your credit card
- Set-up fee - Much like a bank account, the cost to actually open a new credit card account
- Return item fee - This is only if you pay your credit card statements by check (cheque) and the check bounces for lack of funds
- Miscellaneous fees - These can include fees for paying by phone, reviewing your account, credit checks and even standard customer services
Cash Advances
- Access - you may be able to use an ATM, although some credit card companies prefer to send checks
- APR - How much interest you'll be charged for a cash advance
- Fees - Check if there's a fee to pay on top of the interest/APR
- Limits - Depending on your credit card company, you may have a set cash advance amount limit, or a percentage of your credit limit
- Paying back - Will your normal monthly payments go to the purchase balance on your card or the cash advance?
Customer Service
- Friendliness when you contact them
- Ability to answer questions, provide detailed explanations
- Customer reviews of them online, personal experiences
- Processing time for complaints or billing errors
- Reputation with customers
- Fully explain the type of credit card agreement you have
There are a lot of features listed here, and some of them may not be relevant to your particular requirements. So, work your way through the list and assess how each of these features impact on your needs. You can then create a personalized checklist of the features you really require in a credit card.
Once you have finished evaluating the credit cards available in the light of your personal needs and arrived at a short-list of 'possibles' you are ready to progress to the next stage. This involves comparing the credit cards one-on-one in order to find those that really stand out.
Evaluate how well a Credit Card compares with competing Credit Cards
Comparing the items on your interim short-list, one to another, is an important part of the “purchasing” process - we all want to “buy” the best product we possibly can. So once you have established a short-list of credit cards that meet your needs it is time to evaluate how well they compare in fine detail. This way you can assemble a select list of credit cards that stand out from the crowd.
Questions to ask yourself:
Which credit card on my short-list is accepted most widely ?
Which of these cards has the lowest interest rate?
Which of my short-listed credit cards offers the best incentives?
Which is the easiest to manage?
Which of the credit card providers offers the best service?
Which short-listed card has the lowest fees?
Which credit card is the one I like the best?
By answering these simple questions, you are actually eliminating credit cards that aren't absolutely right for you. This is an excellent time - if you haven't done so already - to evaluate how well your short-listed products measure up in the following areas: Conditions and Extras & Incentives.
Conditions
Similar products may be available with significantly different terms and conditions, and you want to get the best deal you can.
Conditions Checklist:
- Fees
- Credit Limits
- Payments
- Penalties
- Limit Increases
Extras and Incentives
When evaluating similar products, it is a good idea to include extras or incentives in your assessment.
Extras Checklist:
- Incentives - reduced fees, extended grace periods
- Extras - fraud cover, travel insurance
- What else will you need to get the most out of your credit card?
Once you've worked through the Evaluation step you will have a final short-list of credit cards that meet your needs and stand out from competing products on the market. It's time then to move on to the third and final step: “Purchase”.
Video Links
Buyz123.com Research Links:Compare CardsCredit Card ComparisonCompare Credit CardsPremium CardsConsider a Premium CardUnderstanding Finance ChargesMinimum Finance ChargeCredit Card Finance ChargesMonthly Payments and Finance ChargesHow Finance Charges Are Calculated