Americans are taught the dangers of credit cards from an early age. Young adults are often warned about ballooning debt, extreme interest rates, and lifelong consequences. Even if a debtor passes away, the burden will fall on their relatives. U.S. banks are currently raking in 113 billion dollars of interest and fees every year from the one trillion dollars of credit card balances. While rising credit card debt does pose a serious problem for U.S. consumers, a lack of credit can be just as detrimental. Whether you are a new college grad looking to build credit, or have years of credit history, here is what you should look for when applying for a credit card.

When deciding on a credit card, you will be limited to the quality and longevity of your credit history. Lenders won’t provide their best offers to someone with poor or no credit. Checking and understanding your credit score is the first step to making an informed decision. For below average credit scores, student cards and secured cards offer high approval rates and an opportunity to increase your score. Student credit cards are tailored to students and recent graduates. Many of these cards offer relevant rewards for students such as rewards for good grades. A secured card works like a prepaid debit card in that you must make a deposit to get one. The main advantage of using either of these cards is that the card company will report your activity to the major credit bureaus in order to build your score.

A strong credit score means that you are a less risky customer who will be approved for better offers. Consumers who have high expenses and want to avoid interest should look for a card with a 0% APR introductory offer. These periods of 0% APR typically last for 6 to 18 months and allow the card holder to make purchases without gaining interest. This benefit often applies to both purchases and balance transfers, so if you are moving money from one card to another, then this offer can really make a difference. While a 0% APR period on balance transfers does avoid interest, there are still fees associated with the original balance being transferred. If you are after the best balance transfer card then get one with a long 0% APR period, and balance transfer fees that are slim to none.

Any decent credit card offers some type of reward for using it, so the question is how these rewards are accumulated and how they benefit you. Many cards offer one-time cash bonuses when you spend a set amount within a set period. While these bonuses are enticing, it is also important to consider the long-term rewards offered. For a hands-off approach, the best choice is a card that offers a steady cash back rate or miles on every purchase. Alternatively, an involved cardholder will benefit most from rotating category rewards. These categories change on a regular basis and offer increased rewards for different places such as gas stations, restaurants, and grocery stores. Finally, you must consider what rewards your card offers. Each card has unique rewards like travel, shopping, and cash back, so it is important to choose a card that most benefits your lifestyle.

Regardless of what card you choose, it is important to research different options and understand the terms and fees. Too many Americans use credit cards to buy things they can’t afford, and in the process destroy their credit and financial future. That’s why it’s important to be deliberate when applying for a new credit card, and to understand the risks associated with interest, late payment penalties, and bad credit.

Austin Long
Tax Professional

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