If you’ve been receiving or seeing a lot of credit card offers, you might be wondering whether they’re right for you. There are a few things worth considering when balancing the pros and cons of credit cards. Here’s how to evaluate a credit card offer.
How Are You Planning to Use the Credit Card?
The first thing you want to do when evaluating a credit card offer is really understand how you yourself plan on using the card. Yes, you: What’s your gameplan with this line of credit? While it can be exciting to get a new credit card, especially when it’s a novel experience, you need to have a plan for how you’re going to spend with it.
The ease of credit cards facilitates overspending. You want to have a gameplan for how you plan on using each card you take out to avoid the trap of using them more than you should. In the next section, we’ll look at how the specifics of a credit card offer can help determine if it will actually fit into your plans.
What Are the Offer Details?
Once you’ve determined whether you have a gameplan for how you’ll actually use a credit card, it’s time to dig into the details of the offer itself. There are a few terms you need to understand in order to tell if a credit card makes sense for you. First and foremost, consumers need to grasp what credit card interest rates—commonly referred to as APR (annual percentage rate).
APR determines how much you’ll have to pay on your outstanding credit balance if you don’t pay them all off, and instead opt for a revolving balance. Since you have outstanding debt, the credit card issuer will want you to pay them interest for having fronted you money in the past. The percentage rate at which you have to pay on a revolving balance can massively impact the implications of having a credit card.
A low-interest credit card for someone with great credit might have an APR in the mid- to low-teens. Someone with poor credit, however, will likely have an APR in the mid-20s or higher. Card issuers do this to balance the risk of lending to people with lower credit scores.
Store or specialty cards typically fall somewhere in the middle. With these, you’re typically looking more at rewards, as these can add up if you’re paying off your card balance. A Chevron credit card, for example, might give you significant cash back when you use it at their locations, but no benefits otherwise. Having a couple of these for near-necessities you use all the time can help you get more bonus rewards. But be careful you don’t let the cart lead the horse, and allow your spending to be dictated by the desire for rewards, especially if you’re carrying a balance over at the end of the billing period.
You should also pay attention to whether or not there’s an annual fee for the card, as this can massively change its viability.
What if You Want to Close the Account?
Something else worth thinking about when it comes to credit card offers is what the outcome will be if you have to close the account later. Some people might be under the impression closing a credit card is something you can do at any time. While there’s truth to this, it doesn’t capture the nuances.
For starters, closing an account isn’t going to get you out of the debt you’ve already compiled on it. This is something that needs to be understood from the beginning. But furthermore, closing a credit card account can have implications for your credit score.
If you’re only closing the account because you’re not using it much, this can have potential ramifications to your credit. There are two main scoring factors that closing a credit card can impact: credit utilization ratio and length of credit history. Together, these add up to almost half of your credit score. Make sure you understand how opening, using, and closing credit card accounts will help or hurt your credit. While it might not seem important, good credit can make your life a whole lot easier when it comes to getting a loan.
There’s a lot to think about when evaluating a credit card offer. Beyond the points mentioned, some credit card offers aren’t even legitimate; so be on the lookout for things that just seem too good to be true. Most often, they turn out to be that way.