How many times have you researched different credit cards, then closed the browser because there was so much information to take in?
It happens more than you might think. There’s specific language that is used for credit cards that make it difficult to compare card offerings – it’s almost like seeing a lot of delicious food options on a menu, but the print is so small and close together that it takes a long time to sift through the menu. It can be overwhelming and a little nerve-wracking, but it’s navigable, just like the world of credit cards.
This article will serve as your magnifying glass, to bring into focus critical things to consider as you start to compare card offerings. If this information is new to you, please know that you are not alone! Financial literacy (especially credit cards) is not universally taught, so curve the judgement and give yourself some grace. Let’s dive in.
Annual Percentage Rate (APR)
The first critical thing to consider as you start to compare card offerings is the Annual Percentage Rate (APR).
If a consumer does not pay their monthly balance in full before the due date, then the credit issuer will charge a fee. The fee is known as the APR and it is the cost of borrowing on the card. An APR range is disclosed in multiple places, including the main page, during the application process, and in the terms and conditions section. The APR is a critical thing to compare between different cards and credit issuers because it is directly connected to how much the card will cost you.
At the time of writing this article, the Discover It® Cash Back’s variable APR is 11.99%-22.99% and the Blue Cash Everyday® Card from American Express’s variable APR is 14.24%-24.24%. Based on this information, the Discover It® Cash Back is offering a lower APR than the American Express Blue Cash Everyday® Card.
The second critical thing to consider is the minimum repayment. If the balance is not paid in full, then you will be asked to make a minimum repayment. The exact amount will vary from credit issuer to credit issuer, but the general rule of thumb is 3% of the balance due or $5, whichever is higher. If the minimum repayment is not met, then your account will be overdue and you may incur additional fees, such as late fees. An overdue account will also negatively impact your score, so monitor your spending and make sure you can at least make the minimum repayment.
The third critical thing to consider is the annual fee. Some cards charge an annual fee to use the card, just like how wholesale clubs charge annual fees to access the warehouse. Annual fee cards, like the American Express Platinum, may be worth it if you travel frequently and would use the generous perks (a free Audible subscription, Uber credits, etc). In case you didn’t know – American Express waives all annual fees for Active Duty service members, making most of their cards a no-brainer while you’re actively serving.
If you’re just getting into the credit card game and want to start with a card that doesn’t carry an annual fee, Chase’s Freedom line offers generous cash back without an annual fee.
Introductory Interest Rates
The fourth critical thing to consider is the introductory interest rate. An introductory interest rate is a low-to-no rate for a set amount of time. The introductory interest rate is active for 6 to 18 months, depending on the credit issuer. If you are looking to spread the cost of a larger purchase over time or consolidate debt from higher APR cards, this criteria may be more important to you than others.
At the time of writing this article, Chase Freedom Unlimited®, Discover It® Cash Back, and Citi Custom Cash® Card are offering a 0% APR for the first 15 months on purchases and balance transfers. Chase Slate Edge® is offering a 0% APR for the first 18 months on purchases and balance transfers, making it one of the longest offers on the market.
The fifth critical thing to consider is the sustainability of the card. I’m not talking about whether or not the card is made from sustainable sources or if the company is involved in environment-friendly activities. I’m talking about whether or not the card is sustainable in your life. If the card has an annual fee, is it something you’ll be able to pay year after year? Is the card an account you will keep open in the long run?
Closing a credit card can actually hurt your credit score because the length of your credit history is a factor that goes into calculating your credit scores. If you do not foresee yourself being able to pay the annual fee year after year, then choose a card that has a low to no annual fee. By and large, having a credit card open for longer periods of time improve your credit scores, so make sure that the card is sustainable in your life.
*Bonus: If you’re looking to improve your credit score, Experian has a feature called Boost. Boost connects your bank account and adds regular bill payments, like utilities, monthly subscriptions, and more to your credit report. These added payments may increase your score. A friend of mine did it last week and boosted her score by 10 points! If your credit is in need of more work, click here to read our post on credit repair.
comparing credit cards
After taking the time to compare cards of interest, you are able to make an empowered decision and move forward with the application process. Understanding the in’s and out’s of credit card language is necessary to become a credit card pro. Once you’ve gotten the comparison process down and are using your cards responsibly, you can start to make your credit cards work for you!
Looking for more information on credit cards? Check out our other posts on credit cards here.