A credit card analysis is a critical activity that should always be performed before applying for any particular card.
As of last year, there were 364 million open credit card accounts, an increase of 4.1% increase from 2016. And most Americans – 7 out of 10 – have at least one card in their wallets.
How much do all those cards hold? According to data by the Federal Reserve, Americans have $1.0645 trillion in revolving debt, the bulk of which is from credit cards, in 2019.
Instead of adding to all that debt, your goal is to keep your debt as low as possible while simultaneously enjoying the perks of credit card ownership.
The following credit card analysis tutorial will help you get to the bottom of the pressing question: Which credit card is best for the most savings and convenience, not to mention all the rewards?
You may have received a credit card offer in the mail or online. Or, maybe you searched and found a few credit cards on your own. No matter how many you are considering, lay them all out in front of you and pore through their terms and conditions thoroughly. Yes, you will want to keep your magnifying glass handy, because analyzing credit cards also means reading the fine print.
When reading through all the credit card gobbledygook, look specifically for the following sections, which will give you more insight into the convenience and affordability of each card.
A teaser rate is a lower-than-normal interest rate that credit card companies offer for a limited time to attract new customers. Under the 2009 CARD Act, a teaser rate must last for a minimum of six months. Some card companies extend their offers for as long as 24 months.
Rates refer to the interest rates assigned to each credit card. Most specifically, you will want to look at the Annual Percentage Rate or APR. The Annual Percentage Rate is a yearly representation of your interest rate. Your APR can be variable or fixed and is based on the Prime U.S. interest rate coupled with the amount the bank charges. If your rate is variable, it will change as the Prime rate changes. Some cards have introductory rates and regular rates. If a card offers an introductory rate, find out when and how the rate changes to avoid surprise charges.
It should be noted that some cards charge different rates depending on the type of debt. For example, the card may charge one interest rate for cash advances and another for purchases.
While the APR is listed in yearly terms, interest is typically charged on a daily basis, but only if you carry your balance month-to-month.
You can calculate the APR by dividing the percentage offered by each day of the year (365). An annual rate of 15%, for instance, would equal a daily rate of (.15/365=) .0411%. So, for every $1,000 you have in debt, you will pay $.41 cents per day in interest.
You can avoid paying interest on your cards by paying off your balances in full each month.
Some credit cards have annual fees, which are charged once a year by the card provider for all the rewards and benefits of using that card. Usually, the credit cards with the best perks and signup bonuses are the ones that charge an annual fee. Most cards charge between $59 and $95 per year while others charge fees as high as $450 or more.
The minimum payment is the least amount you can pay toward your balance without receiving penalties or a potential interest rate increase. Your minimum balance can be calculated in various ways. Most companies charge a percentage of your balance, which is typically between 2% and 5%. If you receive penalties for late payments, these amounts may be added to the minimum due. Look for a section titled, “How your minimum payment is calculated” within the credit card terms to identify what to expect each month when the bill arrives.
When you hold a balance on your credit card, you have 21 days after the end of your billing cycle to make a payment. If you pay less than the minimum amount due, you will be issued a late fee. Some credit cards have tiered late fees based on your credit card balance while others have fixed late fees, regardless of the balance you hold.
By law, credit card issuers are limited by the amounts they can charge for late fees. For example, the card companies can charge a maximum fee of $25 for the initial late payment and up to $35 if you have been late within the past six months. The late fee can never be higher than the violation. For instance, if you were late on a $20 payment, the late fee can never be higher than $20.
The grace period refers to how long you are allowed to pay your credit card bill without accruing interest. The Credit CARD Act of 2009 states that if the card offers a grace period, it must last at least 21 days. In most cases, the grace period only applies to new purchases.
If you plan to pay off one credit card with another, you will want to pay strict attention to the balance transfer section of the card’s terms and conditions. There is usually a fee involved with balance transfers. However, if used properly, a balance transfer can save you significantly with regards to interest. Some cards offer balance transfers of 0% APR for a limited period, which would allow you to put a hold on any interest charged while paying off your credit card debt.
A cash advance is akin to a short-term loan, either from a bank or ATM. You are essentially buying cash instead of goods and services with the credit card, and thus will be charged interest on any amounts you borrow. Many cards have cash advance fees ranging from $5 to $10. Other card companies charge a percentage of the amounts, usually with a percentage and dollar amount. For example, the terms may read that cash advances get charged 2% or $10, whichever is greater.
Keep in mind that you are also subject to ATM or bank fees (which are imposed by the ATM owner or bank) and an interest rate (which is charged by the credit card company). Interest can be costly for cash advances on credit cards. The interest rates for these transactions are typically much higher than rates charged on purchases. Also, there is no grace period with cash advances, which means that interest begins accruing immediately.
It may be convenient to use your credit cards when traveling for business or pleasure but watch out for foreign transaction fees. These charges are imposed by the credit card companies for the privilege of being able to use your credit line anywhere in the world. The amount is usually around 3% and is added to all transactions made abroad. While these fees have been standard practice for a number of years, many cards are doing away with added foreign charges altogether. Keep that in mind if you are conducting this credit card analysis as a frequent traveler.
Some cards, especially those open to good or excellent credit holders, come with rewards. Typical rewards include cash back, frequent flyer points, and merchandise discounts. Many cards have specific reward schemes depending on the use, such as grocery shopping, dining out, or traveling.
This rewards card by Discover lets you earn 5% cash back on things like gas, groceries, restaurants, and Amazon while giving you 1% unlimited cash back on all other purchases automatically. The card doesn’t have an annual fee and offers a 0% APR on balance transfers for 14 months with a regular APR ranging from 13.74% to 24.74% variable.
As an introductory offer, Discover will match all the cash back you earn at the end of the first year, automatically, without the need to sign up. There is no limit to the match amount.
VentureOne’s latest credit card lets you earn 10X miles on thousands of hotels and 1.25X miles on every purchase each day. There is no annual fee, nor are there any foreign transaction fees. There is also no APR on balance transfers with a regular APR of 13.74 to 23.74% variable.
Wells Fargo has teamed with American Express to bring you tons of rewards relating to activities like dining, traveling, road tripping, streaming, and shopping. There is no annual fee and the card offers a 0% APR for balance transfers for 12 months with a regular APR of 15.74 to 27.74% variable.
This card offers a reward of 1.5% cash back on every purchase each day, and a one-time bonus of $150 after you spend $500 on purchases within the first three months. There is no annual fee and a 0% interest on balance transfers for 15 months with a regular APR of 15.74 to 25.74% variable.
This card doesn’t have any rewards like cash back, miles, or points, but don’t let that deter you; this card also offers no annual fee, and an introductory 0% APR for 18 billing cycles on balance transfers in the first sixty days. There is no penalty APR, which means that paying late won’t automatically raise your interest rate, and the regular APR ranges from 14.74% to 24.74% variable. In addition, by using this card, you get access to your FICO® Score free with online banking or by using the mobile app.
These are just some of the credit cards that are available today. The one you choose you will depend on your goals, preferences, and credit score.
Some cards are only available to those with excellent credit, while others are reserved for good credit, fair credit, and even bad credit.
If you have poor credit and begin fixing your credit, you will likely begin receiving offers for better credit cards with lower rates and enticing rewards.
If you have no credit at all and can’t seem to get accepted for any cards, you may want to consider a secured credit card, which allows you to fund the initial credit line to show that you are creditworthy. With enough use, and as long as you pay your bill on time, your credit score will rise, leaving yourself open to receiving other credit card offers down the road.
While some cards may be out of reach to you because of your current credit score, you should try to find the card with the least expensive terms and best rewards. With the average consumer holding around $5,700 in credit card debt in 2019, saving on interest should be your top priority. As long as you learn the terms described on this credit card analysis and read the fine print of each offer carefully, you should be able to decide wisely.
For more information on credit cards and to fix your credit so that you can be approved for the best rewards cards while saving on interest, contact Spearhead Credit Solutions in Newport Beach, California. We can give you the tools to boost your credit for more savings and improved quality of life. Call now for a free consultation.