It's time for new beginnings, and perhaps that means a new credit
card. Finding a good card -- and managing it well -- can boost your
buying power and credit score. But be careful. Misusing your credit
could turn 2013 into a costly year. Here are 10 tips for getting the
right card.
Tip 1: Know your credit
The state of your credit will determine what card you can get. If you
have good to great credit (FICO score of 720 and above), you'll likely
qualify for numerous rewards cards that cater to your personal tastes.
There are rewards cards for hotels, airlines and gas stations. Others
will give you cash back. Those with decent credit (620 to 720 FICO
credit score) may need to stick with a plain-vanilla credit card with no
annual fee. For those with no credit or blemished credit (FICO credit
score below 620), a secured credit card may be your only option. Secured
cards require an upfront deposit to serve as collateral against the
credit limit.
Tip 2: Read the fine print
It may not be the most thrilling read, but the details of a credit
card's agreement will help you differentiate it from others. The terms
and conditions are usually posted on an issuer's website, so you can
read them before you apply. The agreement gives the annual percentage
rate, or APR, for purchases, balance transfers and cash advances. It
also will tell you about late fees, annual fees and the higher interest
rate -- the penalty APR -- following missed payments. And it will
discuss fees for other services such as transferring balances, getting
cash advances or shopping in foreign countries.
Tip 3: Ignore flattering marketing
Many issuers will send out "special invitations" to apply for a
credit card, or they'll tell you that you're "preselected" for a credit
card. Don't believe it. The issuer is just stroking your ego. Most
likely, the issuer has prescreened you for the credit card. That doesn't
guarantee you will qualify for the card. You also may find a better
deal if you comparison shop instead of filling out whatever application
shows up in the mail.
Tip 4: Don't overspend for sign-up bonuses
Those sign-up bonuses are hardly free. Most come with spending
requirements that encourage some consumers to buy more than they should.
If you don't pay off the entire balance every month, you will be
charged interest that would cancel out any benefit from the rewards
program.
Tip 5: Watch out for small-business credit cards
If you sign up for a small-business credit card as a sole
proprietorship using your Social Security number, that account is on
your personal credit report. If you miss a payment on the business card,
it will ding your credit score. Another downside is that the consumer
protections under the Credit Card Accountability, Responsibility and
Disclosure Act don't apply to small-business credit cards. Because of
these disadvantages, you may want to consider getting a personal credit
card instead and reserve it for business expenses only.
Tip 6: Store credit cards aren't always a deal
Every time you open a new department store or retail credit card,
your credit score takes a hit. The new account lowers the average age of
your credit history, a key component of a credit score. A lender will
also pull your credit report during the application process, known as a
"hard" credit inquiry, which is also harmful to your score. If you don't
pay off the entire balance, the upfront 10 percent to 20 percent
discount you received likely will be erased by the card's annual
percentage rate, which typically rises above 20 percent.
Tip 7: Follow best credit card practices
To get the most from your credit card and avoid trouble, make sure to
pay off your balance on time every month. That way, you won't pay
unnecessary interest charges, and the timely payments will help boost
your credit score. If you can't pay off the entire balance, stop using
the card until you can.
Tip 8: Maximize your rewards
Make sure your rewards credit card is working for you. Look for
quarterly changes in rewards points and special rewards-earning
promotions that offer more points for every dollar spent. You can get
more rewards through your credit card's online shopping portals, too.
These portals, which connect you to major retailers, will give you bonus
points for every dollar you spend. Similarly, register your credit card
with dining programs that will increase the number of points you get by
dining at certain restaurants.
Tip 9: Learn how to dig out of credit card debt
Develop a strategy for dealing with credit card debt, and be ready to
follow it. Here are some of the basics: If your balances rise too high,
leave those credit cards at home. Pay the minimum balances on all of
your cards. If there's money left over, pay down the card with the
highest interest rate before dealing with the others. Work your way from
the highest interest rate card to the lowest to save the most on
interest.
Tip 10: Know how to handle card fraud
Make a habit of checking your credit card activity at least once a
month, if not more, for odd charges. If you find an unauthorized
transaction, or if you lose your card, immediately notify your issuer.
The issuer will send you a new card and/or a new account number. Call
the three major credit reporting agencies to put a fraud alert on your
credit reports. Pull your reports to check for any fraudulent accounts.
Check again six months later.
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