Credit cards are quite similar to a chainsaw – they’re both handy, but both are also fully capable of inflicting massive damage if not used properly. For this very reason, recommendations for using chainsaws also apply to credit cards: Pick the right one for the job and use it according to the manufacturer’s recommendation.
If you’re applying for your first credit card, you might want to keep this advice in mind. You also have to make sure you know everything about each option by conducting thorough research.
While there are plenty of great choices out there, only a few can be considered the perfect fit for specific situations. With that said, don’t forget to factor in these four crucial considerations before applying for a credit card.
Your Spending Habits
As with other useful tools, different kinds of credit cards work best in varying situations. To determine which one is perfect for your specific circumstances, you can start by writing down your answer to the following questions:
- Will you be able to pay it in full every single month without delay, or do you anticipate leaving a certain amount as a balance?
- What will you use it for? Is it only for emergencies or will you use it to pay for most of your purchases like groceries and gas?
Your answer to these questions will greatly determine the type of card that suits you and your lifestyle.
For instance, if you don’t plan to leave any balance every month, then you don’t have to worry about getting a high-interest card. Instead, you should focus on finding one that offers no annual fee and an extended grace period to help you avoid finance charges. But, if you expect to carry a balance, you should pick a card with the lowest interest rate and introductory fees.
Meanwhile, if you’re planning to use credit to pay for almost everything, you should pick a card with a high credit limit and a generous incentive program. If it is for emergencies only, choose one that charges minimal fees and comes with a low-interest rate.
After determining your intended credit card usage, it is time for you to think about how you can use it to save money. Some credit cards offer cash back, points, and even discounts in certain establishments. Others incentivize specific types of expenditures, like travel, shopping, and grocery.
Factor in your spending habits and select a credit card that will reward you on what you spend on the most. Just remember to stick to what you ordinarily buy because spending more than you usually do just to rack up points or cash backs won’t help you save.
Interest Rates and Other Fees
Another important consideration you should think about when picking a credit card is the interest rate. This is the amount added on top of what you spent if you fail to pay within a month of your expenditures.
You also need to consider other added costs to using a credit card, including annual late payment charges, lost card fees, and others.
The credit limit is the maximum amount the bank or credit card issuer will let you borrow. This will be based on your credit score, which means that if you’re still a student or if you have failed to pay the money you borrowed in the past, you might have a lower credit limit.
Of course, if you have no issues with your credit history and have been earning enough to sustain your lifestyle, you may have a higher credit limit.
Pick a credit card that will allow flexibility in your expenses without risking spending over what you can afford. Remember that maxing out your credit card is not good for your credit reputation.
Make Credit Work For You By Making an Informed Choice
The perfect credit card that suits your needs is more than just a status symbol – it can also help you achieve financial freedom. Credit cards can work for you if you know how to use them well, so make sure to choose one based on the crucial factors listed in this article.
If you are still having a hard time deciding which credit card is the best fit for you, you can also try using a credit card comparison website to streamline the selection process.
Deepak Kumar is a Co-Founder of SoulWallet, a neutral comparison portal for consumer financial services. With a team of “out of the box” thinkers and a deep understanding of the UAE consumer banking industry, the company helps customers make the best choices when shopping for financial products such as credit cards and loans.