It's time for new beginnings, and perhaps that means a new credit card. Finding a good card -- and managing it well -- can boost your buying power and credit score. But be careful. Misusing your credit could turn 2013 into a costly year. Here are 10 tips for getting the right card.
Tip 1: Know your credit The state of your credit will determine what card you can get. If you have good to great credit (FICO score of 720 and above), you'll likely qualify for numerous rewards cards that cater to your personal tastes. There are rewards cards for hotels, airlines and gas stations. Others will give you cash back. Those with decent credit (620 to 720 FICO credit score) may need to stick with a plain-vanilla credit card with no annual fee. For those with no credit or blemished credit (FICO credit score below 620), a secured credit card may be your only option. Secured cards require an upfront deposit to serve as collateral against the credit limit.
Tip 2: Read the fine print It may not be the most thrilling read, but the details of a credit card's agreement will help you differentiate it from others. The terms and conditions are usually posted on an issuer's website, so you can read them before you apply. The agreement gives the annual percentage rate, or APR, for purchases, balance transfers and cash advances. It also will tell you about late fees, annual fees and the higher interest rate -- the penalty APR -- following missed payments. And it will discuss fees for other services such as transferring balances, getting cash advances or shopping in foreign countries.
Tip 3: Ignore flattering marketing Many issuers will send out "special invitations" to apply for a credit card, or they'll tell you that you're "preselected" for a credit card. Don't believe it. The issuer is just stroking your ego. Most likely, the issuer has prescreened you for the credit card. That doesn't guarantee you will qualify for the card. You also may find a better deal if you comparison shop instead of filling out whatever application shows up in the mail.
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Tip 4: Don't overspend for sign-up bonuses Those sign-up bonuses are hardly free. Most come with spending requirements that encourage some consumers to buy more than they should. If you don't pay off the entire balance every month, you will be charged interest that would cancel out any benefit from the rewards program.
Tip 5: Watch out for small-business credit cards If you sign up for a small-business credit card as a sole proprietorship using your Social Security number, that account is on your personal credit report. If you miss a payment on the business card, it will ding your credit score. Another downside is that the consumer protections under the Credit Card Accountability, Responsibility and Disclosure Act don't apply to small-business credit cards. Because of these disadvantages, you may want to consider getting a personal credit card instead and reserve it for business expenses only.
Tip 6: Store credit cards aren't always a deal Every time you open a new department store or retail credit card, your credit score takes a hit. The new account lowers the average age of your credit history, a key component of a credit score. A lender will also pull your credit report during the application process, known as a "hard" credit inquiry, which is also harmful to your score. If you don't pay off the entire balance, the upfront 10 percent to 20 percent discount you received likely will be erased by the card's annual percentage rate, which typically rises above 20 percent.
Tip 7: Follow best credit card practices To get the most from your credit card and avoid trouble, make sure to pay off your balance on time every month. That way, you won't pay unnecessary interest charges, and the timely payments will help boost your credit score. If you can't pay off the entire balance, stop using the card until you can.
Tip 8: Maximize your rewards Make sure your rewards credit card is working for you. Look for quarterly changes in rewards points and special rewards-earning promotions that offer more points for every dollar spent. You can get more rewards through your credit card's online shopping portals, too. These portals, which connect you to major retailers, will give you bonus points for every dollar you spend. Similarly, register your credit card with dining programs that will increase the number of points you get by dining at certain restaurants.
Tip 9: Learn how to dig out of credit card debt Develop a strategy for dealing with credit card debt, and be ready to follow it. Here are some of the basics: If your balances rise too high, leave those credit cards at home. Pay the minimum balances on all of your cards. If there's money left over, pay down the card with the highest interest rate before dealing with the others. Work your way from the highest interest rate card to the lowest to save the most on interest.
Tip 10: Know how to handle card fraud Make a habit of checking your credit card activity at least once a month, if not more, for odd charges. If you find an unauthorized transaction, or if you lose your card, immediately notify your issuer. The issuer will send you a new card and/or a new account number. Call the three major credit reporting agencies to put a fraud alert on your credit reports. Pull your reports to check for any fraudulent accounts. Check again six months later.
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