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Choosing a Credit Card

It's been said that credit cards are like chainsaws — very useful, but capable of a lot of damage. So here's how to choose a credit card that's right for you.

First, consider how you'll use the card. Do you anticipate carrying a balance each month? If so, look for a low interest rate, but don't be sucked in by a 0% "introductory rate" — this can soar once the first few months are over. Look instead for a low "annual percentage rate," or APR.

If you plan to pay off the balance every month, the interest rate doesn't matter. Look for no annual fees, a long grace period so you're not hit with finance charges, and a good rewards program that you'll actually use. Some offer cash back, or points towards gifts and travel. 

Get an airline credit card only if you fly a lot on one airline — most have hefty annual fees. Read reviews of the cards you're considering. And don't apply for too many cards at once — that can lower your credit score. 

Once you're approved, don't let that credit card turn into a chainsaw: Racking up huge balances — or spending more than 30% of your credit allowance — will lower your credit score and weigh you down with debt, both of which will really hurt in the long run!

Find out what your credit card could cost you ►

This chart from DFI breaks down some of the terms you might find in a credit card offer:

Annual percentage rate (APR)2.9% until 11/1/13 after that, 14.9%The annual percentage rate you’ll be charged if you carry over a balance from month to month. If the card has an introductory rate, you’ll see both that rate and the rate that will apply after the introductory rate expires.
Other APRsCash-advance APR: 15.9% Balance-Transfer APR: 15.9% Penalty rate: 23.9%The APRs you’ll be charged if you get a cash advance on your card, transfer a balance from another card, or are late in making a payment. More information about the penalty rate may be stated outside the disclosure box — for instance, in a footnote. In this case, if your payment arrives more than ten days late two times within a six-month period, the penalty rate will apply. If you make two payments that are more than ten days late within six months, the APR will increase to 23.9%.
Variable-rate informationYour APR for purchase transactions may vary. The rate is determined monthly by adding 5.9% to the Prime Rate.Information about how the variable rate will be determined (if relevant). More information may be stated outside the disclosure box — for instance, in a footnote. The credit card company will designate where the Prime Rate information can be found, such as in the Wall Street Journal.
Grace period for repayment of balances for purchases.25 days on averageThe number of days you’ll have to pay your bill for purchases in full without triggering a finance charge.
Method of computing the balance for purchases.Average daily balance (excluding new purchases)The method that will be used to calculate your outstanding balance if you carry over a balance and will pay a finance charge.
Annual fees.NoneThe amount you’ll be charged each 12-month period for simply having the card.
Minimum finance charge.$1.50The minimum, or fixed, finance charge that will be imposed during a billing cycle. A minimum finance charge usually applies only when a finance charge is imposed — that is, when you carry over a balance.