Choosing a Credit Card

If you’ve got reasonably good credit, odds are you receive credit card offers in the mail all the time. Some of those offers may sound pretty tempting, too—with high credit limits and low interest rates.

But before you fill out any application, you’ll want to read the fine print—and shop around.

Although the government regulates the interest rates and other financial aspects of credit cards, the marketplace is incredibly diverse. Some cards offer cash back or frequent-flier miles based on your spending—but penalize you steeply for making a late payment. Others are more generous with grace periods—but charge a lot if you spend over your credit limit. Some cards make it easy to get cash advances—but charge you a higher interest rate than on ordinary charges.

As a smart consumer, you need weigh the pros and cons of each credit card you consider. And, before you do that, you need to know what the pros and cons are.

The basic terms of use for every credit card are:

1) interest rate (often called APR);
2) grace period;
3) finance charges;
4) annual fee;
5) cash advance fees;
6) late-payment charges; and
7) over-limit fees.

We’ll consider each of these terms in detail in this chapter. But, before we do that, we should raise the important point that who you are can affect what kind of credit card you should use.

Next: Who Are You?