Finding A Good Credit Card

Apr 13, 2011

By Staff writer State Farm™ Employee

Not only is having a credit card a convenience, it’s often a necessity in today’s world – especially when you want to rent a car or book a hotel room.

But with so many different types of credit cards available, choosing the right credit card is essential. It’s important to do your research and apply for one that fits your lifestyle.

Basic Credit Cards

A basic or traditional credit card offers few bells and whistles, but is ideal if you want a low, fixed rate and no annual fee. The credit cards are unsecured, meaning the issuing bank trusts that you’ll repay the amount you charge without requiring a deposit.

These credit cards often advertise introductory rates, which means that you’ll have a lower annual percentage rate (APR) for a specified period of time, either on balance transfers or purchases, or both. This can be ideal if you have an existing balance to transfer from a higher APR card. But know that the rate will eventually rise, when the introductory period is up, to a rate the credit card company must disclose up-front.

Rewards Credit Cards

If you charge a lot of purchases each month, you may opt for a credit card that pays rewards. Each purchase you make will add up for benefits like airline miles, hotel stays, or cash back.

You need to practice extra diligence when choosing a rewards credit card. These types of credit cards often carry a higher APR than basic, traditional credit cards, or have an abundance of fees, which you typically want to avoid with any credit card.

Also, be sure to find one with the right rewards for you. After all, you want to make sure you’re going to use whatever you earn. Hard-earned rewards should never be wasted.

Secured Credit Cards

Qualifying for a standard credit card can be difficult if serious financial troubles have compromised your credit score. Your best and only option may be a secured credit card.

Secured credit cards work like unsecured credit cards but require a deposit in the issuing bank. The credit limit is generally set at the same amount as the deposit.

Choose a secured credit card carefully. Some issuers take advantage of people in poor financial situations through high application and annual fees. Look for a secured credit card with no application fee and a low annual fee.

Most importantly, make sure it reports to all three credit bureaus: Equifax, Experian, and TransUnion. You can use a secured credit card to rebuild credit, but only if your credit is being updated with your new, good credit habits.

Student Credit Cards

Student credit cards are specifically targeted at college and university students, who have little to no credit history. While these credit cards often have high APRs, the right one, used wisely, can be a valuable tool in building credit.

But a student credit card can be difficult to obtain. Federal law now restricts credit card companies from issuing a credit card to anyone under 21 who cannot show proof of income and the ability to pay back the debt incurred, or who doesn’t have an adult co-signer.

A Final Consideration

Regardless of the type of credit card you decide on, be sure to read the fine print – and pay close attention to fees.

While many credit cards have fees, you can find no-fee options or you can avoid fees through smart usage.

The most common fees are:

  • Application fee. Some credit card companies charge a fee just for applying for a credit card. It’s important to note that not all companies charge an application fee. 
  • Annual fee. This fee for having the credit card is typically charged once a year. It’s most common with reward and affinity credit cards. 
  • Late payment fee. If you pay your credit card late, you’ll be assessed an amount disclosed up-front by the credit card company. In addition to the fee, your APR may rise if you make a late payment. 
  • Balance transfer fee. Many credit card companies allow – even encourage – you to transfer your balance from other credit cards. But to transfer your balance, you will likely need to pay a fee, which may be a set amount, or a percentage of the transferred balance. 
  • Cash advance fee. You can use a credit card to withdraw cash at an ATM. The fee is in addition to whatever the APR is for cash advances, and doesn’t include charges assessed by the bank that owns the ATM.
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