Photo: Andres Rueda via Flickr
So you’re on the prowl for a new credit card? OK, great! Before you apply, however, take these 5 tips into account — they are the culmination of my several years in the card business:1. Don’t apply impulsively: Did you receive a tempting card offer in the mail that has a ‘special invite code’ and an expiration date a few weeks from now? Acting impulsively is to the bank’s advantage, not yours. You may think you’ll lose your shot at a 0% intro APR for 12 months if you don’t apply before the deadline, but slow down and consider this: there are offers out there with much longer intro APR periods.
For example, in our deals portal this week, scroll down until you see the three Citi credit cards which offer 0% intro APR for 21 months on purchases and balance transfers — that’s nearly two years of promotional APR. There’s also a popular offer from Discover which offers 0% intro APR on balance transfers for 18 months. Either way, you can do better than those 9 or 12 month offers you’ve been getting in the mail this month.
2. Be very wary of annual fees: Some of my all-time favourite credit cards have no annual fee. You shouldn’t have to pay a fee for the “privilege” of giving a credit card company your business. There are a couple exceptions, however: 1) if the card is a high-end travel rewards or airline miles card, an annual fee of some kind is fairly normal — sometimes it will be waived for the first year, to sweeten the deal. I think an annual fee makes sense if you’re getting a lot of bonus miles upon sign-up that you plan to use toward a vacation. So, for example, if there’s a $59 annual fee, but you’re getting enough miles for a domestic roundtrip flight that would cost you about $200 out of pocket, it’s easy to justify paying that fee.
The second exception is cards for those who are “rebuilding” their credit. If a card company is extending an unsecured line of credit to you (a normal credit card, in other words, and not a secured credit card or pre-paid card) and your credit history is weak or has problems, I think it’s fair that they charge you an annual fee.
After all, they are taking a larger-than-normal risk on you — offering you unsecured credit with no collateral or co-signer required — so it’s only fair that the bank price that risk out accordingly, in the form of somewhat higher interest rates and a reasonable annual fee of, say, $20 to $60. (Unfortunately, the marketplace for “bad credit” cards also has some predatory lenders — if you are asked to pay an annual fee above $60 per year, or if the interest rate is not competitive, tell them to get lost. There are other ways to rebuild your credit without using a card.)
3. Set up auto-pay and online account management ASAP. OK, so you applied for the card and were approved — it arrives in the mail and you activate it. Before you get busy with other things, your absolute first priority should be to set-up online account management and auto-pay so that you’ll never be in accidental default, even if you’re out of the country and forget to pay on time. (I’ve done that before, it’s not fun!)
Online account management is a must these days. There’s no reason you should be waiting for the end of the month for a paper statement to arrive in the mail. Also, I like to configure a text alert that warns me when I’m approaching my credit limit, or when there’s less than a week to go before my payment is due.
4. Be very reluctant to add “authorised users” to your account. Card companies frequently offer extra incentives — more bonus miles or reward points, for example — if you request a second card for a spouse, family member, or business partner.
Again, this is one of those things that benefits the bank, not you: they get higher card transaction volume, and more charges added to your account. You get… the added inconvenience of having to watch another person’s spending habits, in addition to your own.
It’s hard enough to keep your own personal finances in check. I’m a firm believer in “one card per person.” If it’s your own account, you are going to be more responsible than if it’s your dad’s or employer’s card.
5. Balance transfers are not as hassle-free as they sound! It is true that, in many cases, it makes ENORMOUS financial sense to transfer an outstanding balance from a high-interest rate card account to a new card with a 0% or low-interest rate promotional APR.
Despite this, two things should be on your radar: 1) the balance transfer fee and 2) length of time for the transfer to occur. Your BT fee should be no more than 3% to 4% of the total balance transferred. Some card companies are now pushing it to 5%; I think that’s too much to pay. That’s not competitive, and you can do better elsewhere!
Secondly, your balance transfer can take 8 to 10 business days (or even longer) to be approved and posted into your account — so until you are 100% certain that the card company has paid off your old balance, continue to make minimum payments on the old card account. You don’t want to miss a payment.
I hope this article helps you navigate the credit waters. I’m a true believer that credit is better than debit and cash when it comes to making purchases — the added purchase protections, access to credit when your income fluctuates, solid cash back rewards, and so on make credit cards a necessity for most consumers, in my opinion. I use credit cards almost exclusively (I write the occasional check as well).
But you have to be informed when you start using credit. If you get only one thing out of this article, it should be: don’t be impulsive! You have all the time in the world to find the right card, and the right offer.
— provided by Outlaw; browse more deals in our card offers portal.
Disclosures: We’re a credit card offers site, so obviously we maintain financial relationships with numerous banks and financial institutions, including Citi and Discover.