by Penne Cole

Created on: May 31, 2010   Last Updated: June 01, 2010

Credit cards are a convenient form of payment and an easy line of credit. While it can be easy to fall into the trap of racking up large bills, the right credit card, when used correctly, can simplify your life and even save you money. Top factors to consider when choosing a credit card include interest rates, spending rewards, the credit limit, and the annual fees charged, if any. However, other factors like security, the minimum required payment each month, acceptance by merchants, grace period, status, and methods of payment should also be taken into consideration.

Interest Rates

Interest rates, typically referred to as the APR or Annual Percentage Rate, are usually one of the main factors to consider when choosing a credit card. Credit card companies now offer a wide range of cards to suit every payment behavior. If you typically pay off your credit card bill in full every month, the APR should not cause you much concern. However, if you keep a large balance and only pay the minimum required every month, go for a credit card with low interest rates. Note that this may mean a trade off between membership rewards, the minimum payment threshold, and other factors.

Spending Rewards

Credit cards offer a host of reward options. From cash back incentives to points accumulation which you can then use to redeem free flights, hotels, gifts and more, there are no shortage of choices to pick from. Even within the benefit types, there are differences in the number of points or the amount of cash back you can receive from each transaction. Some credit cards offer a flat 1% cash back across all purchases while others offer special incentives for gas, dining, groceries, or other categories. Think carefully about what benefits you would like to receive from your credit card. Cash back cards offer the most flexibility in terms of rewards while points-based cards may be more value for money if you like the items in the redemption catalogue.

Credit Limit

How much you are allowed to charge to your credit card every month should also be taken into consideration. Low credit limits like those offered to students and those without a good credit history may be limiting when you try to buy big ticket items like furniture, appliances, and even plane tickets. However, too high a credit limit can tempt you to spend beyond your means. Typically, you can ask your credit card issuer to lower your credit limit, but increasing it may be harder, depending on your monthly income.

Annual

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