Choosing the Best Credit Card for the Purpose

by : Ajeet Khurana

Most people will agree that having a credit card is a great way to move towards a more responsible and independent way of life.

The truth is you need to be extremely cautious when applying for a credit card, as it is a complex web of fees, charges, and interest rates (not to mention hidden clauses and terms which are not only illegal but also financially dangerous) which can sink you deep in debt.

However, if you are convinced that you are responsible enough to use a credit card wisely, you should go in for one. But first, you will need a layman's crash course on credit card interest rates before you secure and swipe your card at the first opportunity.

Generally speaking, different applicants may get different interest rates. But usually the means for assigning interest rates on an applicant is based on his credit history. If your credit history is good, the interest rate that you are approved for will be a fairly good one. If this is not the case, you would have to work at improving your credit score.

This may be done the hard way, by taking the brunt of the compromised interest rate which the bank will assign to you, or to choose a plan with a lower credit limit so that the interest rate follows accordingly. A prepaid credit card could also be a viable option. But this method of rebuilding credit is hard to secure and it charges even higher interest costs.

Sure enough, there are low interest credit cards or even zero percent interest plans which are available, but as expected, there is a catch: most of these low interest cards have only a short, say six-month, period during which the interest is low. Once this introductory period is past, a higher rate takes its place. For a monthly or annual fee, service alerts are offered, informing the borrower as to when his low interest period is due to expire.

However, these plans tend to be short term in their outlook. They do not have the lasting appeal of some other plans.

Some credit cards can also be used in an ATM to take out funds within the credit limit, but the interest is usually charged from the date of withdrawal, and not from the monthly billing date. This means that the issuer gets a higher payback in interest rate from the transaction than usual.

Make sure that you are clear about the terms that your credit card provider is offering. Remember that interest rates could vary across providers. Some may lure you with teaser offers of low rates for a certain period, whereas the regular rates can get as high as 40 percent.

Since there are no fixed regulations concerning interest rates and penalties on late payments, some issuers forfeit the teaser rates if the borrower does not make the payment on time, and replaces it with a penalty interest rate. Some can even be so unscrupulous as to charge interest even if the balance is fully paid on the due date.

You should keep an eye out for the card that is the most affordable. However, the low rates are not enough. One must make sure that the other terms are not difficult to deal with.