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.