Find a Good Credit Card

If you're shopping for a card, consider why you want it.
Will you pay the card off every month. or will you carry a balance?  Can you handle having a large amount of credit at your disposal—will you overspend if it’s available?

If you will pay your balance off every month – and we encourage you to do this if at all possible - you might want to look for a card with rewards, such as airline miles or "cash back."

If you don’t plan to pay your balance off every month – forget about rewards, and focus on finding a low interest rate.  The downside of paying a high interest rate will quickly overwhelm any rewards you might get.

More Tips:

The Credit CARD Act, signed by the President on May 22, 2009, finally becomes effective on February 22, 2010.  This new law is a huge victory for consumers, and prohibits some of the worst tricks and traps of the industry.  But there are still reasons to be wary, and some cards are definitely better than others.

• Consider a card from a credit union.  Credit unions regulated by the National Credit Union Association cannot charge more than 18% interest.  If you should do something that triggers the "penalty rate" on a credit card issued by a bank, it will almost always be substantially higher than that.

• Beware of "subprime" credit cards, which charge enormous fees upfront that often eat up almost all the available credit.

• Low introductory rates can be helpful, but be very careful.  That introductory rate usually only lasts for six months, and it will balloon to a penalty rate if you miss your minimum payment two months in a row.

• If you plan to carry a balance, look for a low interest rate, and find out if the rate is "fixed" or "variable."   Also, find out what the “penalty” interest rate is, and what officially triggers it.

• Minimize fees.  Many cards don’t have an annual fee, so you should limit your search to these cards.  Be aware that other fees can crop us as well:  late fees, overlimit fees, cash advance fees, balance transfer fees, even fees for buying lottery tickets with a card.  If you plan to travel outside the USA - even if only to Canada or Mexico - look for a card that doesn't tack on a totally spurious "foreign transactions fee" (usually 3%).

• Get the right credit limit.  Make sure it’s not too high or too low for your needs.

• Avoid "Binding Mandatory Arbitration" (BMA) clauses.  BMA clauses state that in case of a dispute with the lender, you must resolve your complaint through an "arbitrator" appointed by the lender.  This denies you your right to go to court before an impartial judge.  These objectionable clauses are generally absent from cards issued by credit unions, and even some of the major bank issuers have dropped them because of legal actions against the corrupt arbitration industry. 

• Look for the "Average Daily Balance" Interest Calculation Method.  There are several ways a creditor can calculate the interest on your balance.  Look for a card that uses the "Average Daily Balance."

Last updated: February 18, 2010.