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Credit Card Basics  Chapter 1: Match card and lifestyle
The smart consumer selects the card that matches his or her spending and payment habits.
 
   
Match card and lifestyle

Finding the card for your lifestyle
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Be honest with yourself
Get real. You may say you'll pay off every statement in full every month, and you may even promise that you'll have a zero balance by the time the teaser rate expires -- but will you? Unless this is your credit history, don't make promises to yourself you can't keep. Because if you don't do what you said you'd do, you may be stuck with a very, very expensive card.

Make sure you confirm with a company that they are offering what you think they are offering. It's very easy to misunderstand some of the arcane information in the small print. Go over it with them, then ask if they can do better -- their best offer may not be the first deal they offer you.

Understand key numbers before you sign: What is the APR, annual fee, grace period, penalties, late payment charges, over-the-limit fees and interest rates on any cash advances, and under what circumstances can the card company change your interest rate (or any other terms of the deal)?

Don't plan to rely on your credit card as a source of cash advances. You should only get cash advances when it is absolutely necessary because they usually come with higher interest rates.

Annual fees aren't things you ordinarily want on a credit card. But in cases where you intend to carry a balance, you may want a card that has an annual fee. That's because it may offer substantially lower interest rates.

APR alone doesn't make the deal
The interest rate you pay (best calculated as an annual percentage rate) may not by itself determine if you have the best deal. The way that APR is applied to outstanding balances can vary -- and that can mean more, or less, comes out of your pocket to pay for the luxury of borrowing money. Penalty fees or other additional charges (e.g., annual fee, late fee) also need to be figured into the value of any deal. For example: If you know your credit history and you know that, despite your best efforts you're going to be late a few times with the payment, use a calculator to see if a card with a slightly higher interest rate but lower late fee might be a better deal.

But the lower the rate, the more you save on the finance charges that are applied to outstanding balances. You should look for credit cards that offer a low intro rate (usually for at least 6 months). But be sure you know what happens when that introductory (or "teaser") rate expires. What is the new rate? Does anything else in the deal change apart from the rate?

-- Updated: Sept. 29. 2008
 
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