5 Things to Know Before You Apply for a Credit Card

The use of credit cards is typically frowned upon by financial experts as mismanagement of credit cards can lead to the accumulation of significant high-interest debt. 

While the mismanagement of credit cards has gotten many people into financial troubles, credit cards can actually be a great thing as they can help people pay for financial emergencies, establish a strong credit history, and even accumulate a significant amount of rewards. 

While there are advantages of credit cards, there are several things that you need to know when you apply for a credit card.
 
1 – Know the Qualifications
When reading through credit cards offers, there may be some very lucrative sounding offers for low interest rates or high rewards.

However, these offers may only be available to a select few consumers, including those who have very high credit scores or high levels of income.  Try to find out what the requirements will be prior to applying. 

Otherwise, you may be denied the better credit card offer, but will be approved for and automatically issued a less favorable card.
 
2 – Understand the Rewards Program
Another key thing to know when you apply for a credit card is how the rewards program works.  Credit card providers can promise some very lucrative rewards, including five percent Cash Back or triple Airline Miles

While these can sound very lucrative, they are often limited to a certain amount of points or Cash Back each year, or could be for a very limited time.  To be able to truly compare one card against another, you need to understand what the rewards will be, what limitations or caps are in place, and whether or not they are only offered for a limited time. 
 
3 – Fees
While many credit card providers may offer very lucrative Reward Credit Card Programs, they often are required to compensate for those rewards by charging higher fees.  In order to determine whether the card is still a good option for you, it is important to compare all fees that come with it.

These fees can include an introductory fee, an annual fee, and even monthly maintenance fees.  These fees could easily end up costing hundreds of dollars per year.
 
4 – Interest Rate
Another way that a credit card provider will be able to compensate themselves would be by charging higher interest rates.  If you never carry a balance on your credit card, then this wouldn’t necessarily make a difference. 

However, if you do carry some credit card debt, or may have to carry a balance to pay for a financial emergency in the future, then the difference between a high and low interest rate could be thousands of dollars per year. 

Some credit cards without perks will offer interest rates below ten percent, while some with strong Reward Credit Card Programs, could easily exceed twenty percent. 
 
5 – Penalties
Prior to applying for a credit card, you should also understand their penalty system for late payments. Be sure to understand whether the penalty is a simple one-time fee, or if it includes a more significant penalty, such as a permanent increase in the interest rate or permanent eradication of rewards. 

Next— Are you looking for the best Secured Credit Card in 2013? Find out more here!

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