How to choose your next credit card

by : Nick Davis

If you're thinking of applying for a credit card, there are several important things to consider.

Probably the most important is whether you are going to pay off the entire balance on your card every month, or whether you might sometimes leave a balance outstanding.

In the latter case, the interest rate on the card will be your most important consideration. This is normally expressed as an APR (annual percentage rate). The APR is the interest rate you will pay on any outstanding balance every month. The higher the APR, the more you will pay in interest charges, so your first priority will be to get a card with a low APR.

Many cards offer low or zero interest introductory rates, but be careful - once the introductory period (typically six to nine months) is over, the rate may rise substantially. If you are confident that by the time the offer period is over you will have paid off the entire outstanding balance, this may not matter to you. However, you must be honest with yourself here. If you know you are likely to spend more once you have the card, you need to look carefully at the normal APR as well.

On the other hand, suppose you are confident that you will be able to pay off all your expenditure every month in full. With most credit cards, if you pay off your entire balance by the due date each month, you won't be charged any interest, and you won't therefore need to worry about the APR. Instead, you will want to take into account other factors such as the following:

Acceptability - Is the card widely accepted? Mastercard and Visa are the most widely accepted cards in the US (and world-wide). American Express is also relatively popular. With other cards, check that they are likely to be accepted at the types of outlet you plan to use.

Fees - Apart from interest charges, some card issuers impose an annual fee. This is now the exception rather than the rule, and if you are sure you will pay off your balance every month, you should look for a card that does not charge an annual fee.

Credit Limit - Every card comes with a pre-set maximum spending limit. Obviously, you want this to be high enough to cover your likely monthly expenditure. However, if a high limit will be too much of a temptation for you, a card with a lower spending limit may be preferable.

Cashback - Many card issuers offer cashback as long as you clear your balance every month. That means for every dollar you spend, your card issuer will give you back some money, usually once a year. The amounts vary, but typically range from 0.5 to 2 per cent of total spending. There is often a cap on the total amount you can get back in a year.

Other Perks - A range of other perks can be found. Some cards offer frequent flier miles. Others offer discounts on gas or new cars. Still others - so-called affinity cards - make a small payment to a charity or other organization every time you use them. If your decision on a card comes down to which perks will be best for you, try to put a dollar value on each one, based on your lifestyle and likely expenditure.

In summary, before choosing a card, first decide whether or not you will be paying off your balance in full. If not, a card with a low APR should be your priority. If so, look for a card with no annual fee and other benefits you want, e.g. cashback, discounts or travel miles.

Having decided on the type of card you want, take the time to study the market and see what is available. Do not simply fill in and return the next credit card application form that arrives in the mail. Credit card comparison sites such as can make this easier for you by listing all current card offers for you to choose from, and also have a range of articles offering unbiased advice and information.