Article and audio introduction by Samantha Kennedy, Family and Consumer Sciences
Make the Right Choice
With the holidays fast approaching, it may be tempting to apply for another credit card or two in order to have a little extra money to cover added expenses. However, opening new lines of credit just to increase purchasing power is generally not a good idea, especially if the impending credit card bills do not fit within the monthly budget.
Remember, credit card balances should be paid in full each month in order to avoid the accrual of interest. If that is not possible, seriously consider any purchases before making them.
That being said, having and using credit cards wisely can help improve overall credit worthiness and increase a person’s FICO credit score. A credit score is a three-digit number that represents the likelihood that someone will become delinquent on their credit obligations. The higher the number, the better a person’s credit worthiness, and the lower the risk to lenders.
Compare Credit Card Offers
When shopping around for a new credit card, it is important to compare a variety of offers in order to find the best card for the intended purpose. First, decide how the credit card will be used. If the balance is not going to be able to be paid off each month, opt for a card with the lowest possible Annual Percentage Rate (APR).
If the balance will be paid off each month, opt for a card that offers more rewards, since these can add up quickly each time the balance is paid. At the end of the year, the rewards can be used for airline miles, cash back, or other bonus items.
There are four things to focus on when comparing credit card offers. The first one is APR. Some card offers provide a range of possible rates, with the final rate unknown until the card is issued. Be sure that the highest possible rate is acceptable before applying.
The second thing to look for is the APR for balance transfers. If other card balances will be transferred to the new card, make sure the APR for balance transfers is better than the APR on the old card. Be sure to look for the APR on the life of the balance, not just the introductory interest rate.
Penalty APRs are those interest rates charged when at least the minimum amount due has not been paid for at least 60 days. Other restrictions apply depending on the credit provider, so be sure to find out what triggers a penalty APR and how long it lasts before applying. Of course, paying the balance in full each month will prevent any interest from having to be paid at all.
Some credit cards charge a variety of fees, such as annual fees, cash advance fees, and late payment fees. Be sure to understand all the fees connected with a card before applying. If possible, avoid cards with annual fees, as the annual fee automatically gets charged to the card each year, adding to the total balance.
When beginning a search for a new card, start with your current bank or credit union, as this may result in a better offer. Try negotiating a better deal with any existing cards or ask the bank to match or beat a deal from another lender.
Only apply for credit that is needed, as applying for too many cards at once can negatively affect overall credit scores and raise a red flag for future lenders about creditworthiness.
While transferring high interest balances to lower interest cards may seem like a good idea – and it can be, if the right card is chosen – keep in mind that most credit cards charge a fee to transfer balances. Three percent of the total amount transferred is the standard amount, which is added to the overall balance, increasing the total debt. This amount, in turn, is subject to any future interest.
For more information about applying for an using credit wisely, please call Samantha Kennedy, Family and Consumer Sciences agent, at (850) 926-3931.
For more information about using credit cards wisely, please read the UF/IFAS factsheet: YOU and YOUR CREDIT: Credit Card Basics.
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