The Best Credit Card

From LoveToKnow Creditcards

What’s the best credit card? A free one! No credit limit or fees of any kind! Payments due every other month with no interest – ever!

In an alternate universe, that credit card may exist. But on this planet, the best credit card is comprised of variety of factors: how the cardholder intends to use credit; the level of credit needed; incidental costs such as annual percentage rate, annual fees, late payment fees and cash advance charges; and what, if any incentive offers are appealing.

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First Examine Your Lifestyle

Even if an individual is new to using credit, there’s a wide understanding of how misuse of credit can cause financial havoc. So regardless of whether you’re using credit for the first time or an established consumer looking to make a change, evaluate your spending habits:

When you receive unexpected income, do you immediately spend it, deposit it into savings or a little of both?
Are you an impulse buyer?
Do you feel you “need” the next big thing right away?
Will you use your credit card for purchases, cash advances or both?
Do you plan to pay the credit card balance off each month?
Is the card to be used for occasional or emergency use only?

The answers to these questions provide the set up for comparing key elements of the best credit card for your purposes.

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Set Up a Comparison Chart

Start by comparing three credit cards: one from your local bank, where you probably have some financial history established, in addition to two primary lenders.

The Federal Reserve Board suggests the following comparison structure to determine the best credit card:

On a piece of paper, list columns Card A, Card B and Card C with the following comparative points:

What Kind of Card

Secured
Regular
Premium

Annual Percentage Rates

For purchases
For cash advances
For balance transfers
If you pay late

Type of Interest Rate

Fixed
Variable
Tiered

Grace Period

If you carry over a balance
If you pay off the balance each month
For cash advances

How Finance Charge is Calculated

One cycle or two
Including or excluding new purchases
Average or adjusted
Minimum finance charge

What are the Fees

Annual
Late payment
Over credit limit
Set-up

Cash Advance Features

Transaction fees
Limits

Credit Limit

Starting
Incremental
Unlimited

Other Features and Incentives

Merchandise or Retailer Rebates
Cash Back
Frequent Flier Miles
Other

Credit card lenders offer quite a number of features in the "other" category, such as various forms of insurance, additional warranties on purchases, debt repayment assistance, fraud or theft protection and other extras. Some of these elements are free, but most come at a price. This category should be the last thing considered when choosing your credit card.

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How to Choose the Best Credit Card

Now that you have your comparative points in place, it’s easier to select a credit card that suits your lifestyle.

If you’re an impulse buyer, starting with a prepaid credit card will help you control your spending, since this card requires a secured cash balance up front to establish a credit limit.
A card with the lowest APR may be necessary if your budget doesn’t accommodate a card balance payment in full each month.
If you have control over spending, you might be ready for the next stage of credit usage with a card featuring incentives that rewards your loyalty and purchasing power.
Evaluate your use of cash advances: if they are unavoidable, a card with low cash advance fees is your best option. A caveat: financial experts recommend that cash advances be used in emergency situations only, so if you’re using them as quick loans and incurring high fees as a result, the rest of your budget may require serious restructuring to break this financial freefall.

Here’s the bottom line when choosing the best credit card: evaluate your habits and pick the card that facilitates your needs. A credit card is only as good as the borrower that uses it.

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External Links

The Federal Trade Commission’s credit card consumer site is a comprehensive resource that explains basic credit card operations as well as balance computation methods, refunds on credit balances and handling charge disputes. Visit the FTC for more information.

In addition, here are some primary lending sites with which to start your three-card comparison: