Almost all credit cards offer some form of benefits, rewards, and promotions. But they all vary, so it is important to know what features each card offers and which of those features matter most to your lifestyle. For example, do you care more about getting cash back on purchases or earning points that can be used towards travel?
On the flip side of the coin, many cards include fees, ranging from an annual fee to foreign transaction fees. These fees can really add up. Do your research to find the right credit card that best fits your lifestyle, and avoid cards with excessive fees and interest rates.
Top Benefits and Rewards
Some credit cards will reward you with cash back, typically ranging from 1-2% for purchases you make on the card. Cash back credit cards are often designed to fit your lifestyle by offering more cash for certain categories of purchases. For example, college students may spend a lot of money on gas and groceries. A good cash back credit card for college students would then offer 3-5% of cash back for gas and groceries, and 1% for any other purchases.
Cash back can be an efficient way to be rewarded as you use your credit card, but earning rewards such as an airline flight or iPad may be more enticing. Rewards will vary across different credit cards, but most will provide you with rewards points or travel miles as you spend. If you enjoy the thought of building up rewards points for a singular grand prize, then a credit card that offers rewards is for you.
Common Fees and Costs
0% Introductory APR
An APR, annual percentage rate, is the interest rate that credit card providers charge on your outstanding balance when it is not paid within your statement’s due date. Your APR is calculated monthly. For example, if your credit card’s APR is 24%, then your monthly interest is 2% (24% divided by 12 months).
Many credit cards on average offer 6 months of 0% Introductory APR, which means you will be paying zero interest on all new balances accrued for that timeframe. A 0% Introductory APR is helpful if you are new to credit, and still gauging your spending and budgeting habit.
It is important to note that you will still need to pay the minimum balance on time every month to keep your 0% Introductory APR. When the promotional period is over, you are expected to pay any outstanding balance accrued during the introductory timeframe—at which time, the normal variable APR will be applied to your outstanding balance.
No Late Fee
You must pay your minimum balance every month towards your current balance when using a credit card. Your credit card provider will determine a date of every month that you will need to pay your minimum balance. Not paying your minimum balance by this date will result in a late fee, which will typically be $25 – $35 and can negatively impact your credit score.
Like the 0% Introductory APR feature, some credit cards will waive the first late fee, which is great for first-time credit card owners. Chances are, first-time credit card owners are not in the habit of remembering to pay their minimum balance every month. To make it easier on yourself, sign up for a credit card with no late fees while you get in the monthly habit of paying a minimum balance.
No Annual Fee
Annual fees, in a way, are like a membership to own a credit card. Travel cards and rewards cards are more likely to have annual fees in order to cover the travel miles and rewards they offer to their customers. If your credit card charges an annual fee, you will want to determine if the rewards and perks you are receiving are greater in value than the annual fee you pay. If they are not, then you should look for a card without any annual fees.
No Foreign Transaction Fee
If you are from outside the U.S. or plan to travel abroad, look for a card with no foreign transaction fees. Foreign transaction fees can be an additional 1-3% of any purchases you make outside of the U.S or using a foreign currency. These fees can add up, and make it harder to pay off your current balance.
When looking for a credit card, know that not all cards are the same. To help you decide between credit cards, looking at the different types of rewards and fees is probably an important thing for you to do when choosing a credit card.
In the next lesson, learn more about How to Apply for a Credit Card.