With so many great cards on the market, it can be difficult to find the absolute best credit card available.
The celebrity spokesperson might get your attention or you might be smitten by all those bonus rewards points you get for signing up. Before you make a decision based on a card's bells and whistles, and once you've checked your free credit score, be sure to take a closer look at the nuts and bolts.
You should never sign up for a credit card unless you know these three numbers.
Most credit-card applicants are savvy enough to check the interest rate (the APR). This is the percentage you pay to the credit card company for the privilege of borrowing their money.
The interest rate may not be important if you pay off your balance monthly. If you expect to keep a balance, though, you'll want to find the lowest rate possible. Once you get into double-digit rates, you'll find the amount you are paying in interest begins to add up quickly. (And, if it's a cash-back rewards card, the interest you pay will most likely be higher than the cash back you earn.)
Most cards have more than one interest rate. Before submitting any application, look for all of the following:
- Purchase interest rate
- Cash-advance interest rate
- Balance-transfer interest rate
- Promo rates
Promo period time frame
Speaking of promo rates, you need to know how long the introductory rate will last. Some cards may advertise themselves as zero-APR credit cards, but that may be a special rate for the first few months only. After that, the rate could jump to double digits.
Knowing how many months you have for a promo period is especially important if you are comparing balance-transfer offers. You need to know exactly how many months you have to pay off the balance before you start getting hit with interest.
Perhaps more importantly, you should know the promo period for store-branded credit cards that offer same-as-cash financing. If you miss paying off the balance before the promo period ends, some cards will retroactively apply all the interest from the date of purchase.
Finally, you need to know a card's grace period. This number is most important for those paying off their balance each month. Grace periods do not apply if you carry a balance. If you carry a balance, interest is charged on every purchase from the time it is posted to your account until it is paid off.
The grace period is the time between the end of your billing cycle and the date your payment is due. Although credit card companies aren't legally required to provide grace periods, most do as a courtesy to their customers.
While the law doesn't require grace periods, it does require companies offering them to send out a statement at least 21 days before payment is due and interest begins to accrue. That means you might see grace periods as short as 21 days. However, 25 days seems to be more typical, and of course, the longer the grace period, the better.
When looking for the best credit card, you need to look at more than rewards points and cash back offers. Make sure you understand the interest rates for all the various ways you can use your card. Then, double-check the credit card offer for promo periods that might expire before you pay off a balance. Finally, look for a card that offers the longest grace period possible.
With a little time spent comparison shopping, it won't take long to find the perfect credit card to keep your costs low and your rewards high.