The Most Important Things to Consider When Getting a New Credit Card

To avoid getting into financial difficulties down the line, it is important to honestly appraise the reasons for applying for a new card before applying. Almost everybody needs at least one credit card, so applying for a first one is sensible. It can also make sense to add a card to obtain specific benefits that other cards do not offer — for instance, generous airline miles or cash back on purchases. So does applying for a business card to keep personal and business expenses separated. If the purpose of a new card is to make purchases or buy travel that would otherwise be unaffordable, reconsider the application seriously.

“A credit card is a bit like a chainsaw,” notes the credit card advice site CreditCards.com. “It’s a very handy tool, but it’s capable of inflicting horrendous damage if used improperly.” Improper use mostly means running up debt beyond what the cardholder can afford to pay off in a timely manner, which means added interest fees and possibly penalties. For those who will be able to pay off the card balance every month, a card with no annual fee is best. (Fun fact: the credit card industry calls people who never carry a balance from month to month “deadbeats” — a term that usually means the opposite — someone who habitually fails to pay off debts.) If the card is going to be used for almost everything on a daily basis, seek one with a high credit limit and a good rewards program. If it will be used more for occasional expenses and the balance won’t be paid off entirely each month, shop for the lowest available interest rate.

Know the price for the privilege of credit. The APR, or annual percentage rate, on a card may vary substantially. Typical rates, which may be fixed or variable, range from around 14% to 26% or more, though some very low rates are available to applicants with a particularly high credit scores. Bear in mind that whatever rate the card offers, even one that is “fixed,” may be increased by the credit card issuer in response to late payment, a lowered credit score, or charges over the limit. Actually, the issuer may raise the rate for any reason, but must notify the cardholder of the change.

In addition to interest and possible penalties, most credit card companies levy an annual fee. These typically range anywhere from $25 (for a straightforward card with few perks) to $450 or more (for a premium card, like American Express Platinum, which offers concierge service and other benefits). There are also a number of no-fee cards, however, which are worth considering if their other features are suitable to your needs.

In addition to annual fees, interest, and penalties (including late payment charges), various amounts may be assessed for adding additional cards (as for a family member) to the main account; transferring a balance from another card; taking out cash advances; increasing the credit limit; charging transactions in foreign countries; and redeeming awards. Various other charges might accrue for replacing a lost card, copying transaction receipts in the case of disputed charges, and more. Not all cards apply fees in all these cases, so it’s worth reading the fine print before signing up for a card.

The amount of money a credit card issuer will allow to be charged depends on the type of card receive, the company’s policies, and the applicant’s credit record. Credit card statements include will list the credit limit and track the available credit at any given time. As noted above, if the card is going to be used for almost everything on a daily basis, a card with a high credit limit is best. If you’re worried about overextending yourself, however, a lower limit would be best. In any case, keep track of how much available credit you have to avoid point-of-sale embarrassment — and remember that maintaining a balance close to your limit will negatively affect your credit score.

Credit card issuers have different policies in treating excess charges. Sometimes your transaction is simply declined, which can be embarrassing. Often, however, the issuer will respond to your overcharge — especially if it happens more than once — by raising your interest rate, reducing your credit limit, withdrawing your rewards points, setting a higher minimum payment amount going forward, and/or billing you for your payment (or even for your entire balance) early. If you go over your limit habitually, they will likely cancel your card.

Many credit cards offer incentives, including airline miles and cash back. If you fly mostly with one airline, a card co-branded with that carrier would make sense. If you use several airlines, learn which ones offer the most mileage (or points that can be used towards mileage) for the most categories of purchases. Other cards offer credit (“cash back,” which can be applied to future purchases) for money spent. Sometimes purchases in certain categories, such as groceries, will earn extra cash, either permanently or for limited periods. Some co-branded hotel chain cards offer free nights annually.

This is a factor often overlooked when people compare credit cards. It may be relatively unimportant compared with such issues as interest rates, fees, and incentives, but good customer service is important. How good is the customer interface for answering questions or problems on your account? Is the credit card website easy to navigate? Does it offer live chat options? Is it possible to get a knowledgeable person on the phone to answer questions that can’t be dealt with through an automated phone system?