Reality Upgrade

There are a ludicrous number of credit cards out there, and sometimes the choices can be a little overwhelming.

Now that there is a new law coming into effect nine months from now that will take many of the hidden fees, charges, and rate hikes out of the credit card business. It will also require contract terms to be in “plain English”.

That is nice, but it has the most benefit for people who habitually abuse their credit cards, i.e. going over their limits, leaving high balances on card for a long time, missing multiple payments, etc.

For those of us who have been responsible with our credit, there are some other, related changes that are not so helpful. Interest rates will likely increase, more cards will charge annual fees, credit limits will be lower, and credit cards will be harder to get.

So, into this brave new world of “plain English” we go, and so it seems like a good time to think about what kind of credit card to get.

Know Thyself

First, know what kind of spending habits you have.

Around 40% of Americans pay off their entire credit card bill every month.

For you, a rewards credit card is probably best, either one that has cash back or something else, like reward miles. Even though the interest rate on this type of card is generally higher, the interest rate really does not matter for you, since you pay off the card each month.

On the other hand, many Americans leave a balance on their cards, either habitually or every now and then.

For you, the interest rate of the card is of primary concern. Even if a card has a yearly or monthly charge, getting a card with the lowest interest rate possible is very important.

It is probably worthwhile to calculate how much your typical balance is on the card, and figure out how much you will be paying in interest, including yearly charges.

If you typically have a high balance month-to-month, it is probably better to have a card with a yearly or monthly finance charge and a lower interest. On the other hand, if you typically carry only a small balance, or only carry a balance sometimes, it is probably better to have a card with no finance charge but a slightly higher (but still as low as you can find) interest rate.

Know Thy Enemy

Or in this case, your financier.

Before you get a credit card, contact the credit card company and ask as many questions as you can think of. Knowledge is power.

Some things to definitely ask are:

• Does the card have an annual fee? If so, how much?
• What is my interest rate?
• What is my credit limit?
• What is the fee if I go over my credit limit?
• What is the late fee for late payments?
• Is there a grace period for late payments, like if my payment arrives within 24 hours of the deadline?
• Can I change my payment due date, like to make it five days after my second paycheck each month?
• Do you offer automatic payments?
• Are there other interest rates on things other than purchases, like balance transfers and cash advances, and what are they?

Check out these great sites that can help you find a card with the lowest interest rate or the best rewards:

http://www.billshrink.com/

http://www.bankrates.com/