By Brigitte Yuille

No matter whether you're considering a credit card for the first time, or if you're a current credit card user looking for better rates, you'll need to figure out your spending habits and how often you plan to use your card when you're shopping for a new card.

Credit Card Users
So what type of credit card user are you? The most common types of credit card users are:


Non Revolvers
These are credit users who pay their credit card balances in full each month. Some primarily use the card for business purposes, such as travel.


Revolvers
These users tend to carry a balance. They roll over unpaid purchases from one period to the next and tend to pay the minimum payments or a little more. These users end up paying interest charges.


Combination Users
These users do a little of both. They carry a balance but it's paid off within a few months.

When you apply for a credit card you're entering a legally binding document between you and the credit card issuer describing the terms of the credit card agreement. This makes you responsible for any debt you incur. As you shop around for a card, you have the right to review a brief disclosure.

When you look for a credit card, apply for one at a time. Lenders will review your credit report to determine your ability to pay on time. Applying for the card can count as a "hard" inquiry on your credit report. Too many of these inquires on your report can lower your FICO credit score. (To learn more about what you can do to improve your credit score, check out 5 Keys To Unlocking A Better Credit Score.)

Questions to Ask When Choosing a Card
Asking a few questions about the credit card terms can help you make a better decision. The following are a few inquiries the American Institute of Certified Accountants suggests:



  1. What's the interest rate? Is it fixed or variable? If variable, how is it calculated? Will different interest rates be charged for purchases, balance transfers and cash advances?
Also consider the annual cost of credit. This is usually expressed as the annual percentage rate or APR, otherwise known as the interest rate. A fixed APR remain the same, but it can be affected by long-term economic conditions. A variable APR is subject to change because it follows economic indicators, such as the prime rate and the LIBOR rate. It's also not uncommon for several different APRs to appear on one credit card for purchases, balance transfers and cash advances. (Learn more about the importance of APR in Cut Credit Card Bills By Negotiating A Lower APR.)

Revolvers and combination users will want to look for the lowest interest rates. Non-revolvers are less concerned about the APRs, because they will not have to deal with finance charges.

  1. Is there an annual fee? What other fees may be charged?
Annual fees are typically charged on the anniversary of the day you opened the account.

A non-revolver would look for a credit card that offers a low or no annual fee. The card may also include set-up fees such as activation, acceptance and participation fees. A number of transaction fees for services such as a cash advance or balance transfers may also appear.

It's also important to pay attention to late fees - the higher the balance, the higher your late fee. Exceeding the credit card limit also triggers over-the-limit fees, so pay attention to the limits associated with the card. The size of these fees may largely depend on your ability to repay a loan, which is determined by your credit score.

  1. What's the length of the grace period (if any)?
Grace periods are the time, typically 20-30 days, during which you won't be charged interest. The longer the grace period is, the more you will be able to avoid finance charges and save money. This benefits both revolvers and combination users.

  1. What method determines the outstanding balance used to calculate the finance charge?
The average daily balance method is the most common balance computation in which the sum of your balance on each day during the billing cycle is divided by the number of days in the cycle. This method can leave out recent purchases you've charged. The adjusted balance method considers payments you've already made and not the new charges because it looks at all credits that are posted before calculating finance charges. This technique can help keep finance charges low. However, the one to look out for is the two-cycle average daily balance method because it's the most expensive. It uses the total of the average daily balances for two billing cycles. (For more insight, check out How To Read Loan And Credit Card Agreements.)

If you plan on making a lot of purchases on the card and can pay down the balance on time, consider a rewards card and make sure it's flexible enough to meet your needs.

Many credit cards will tempt you with low introductory rates but proceed with caution. The low rates are temporary and can change quickly, so make sure to mark the date when the period ends. The rates typically last between six months and a year.

Next: Credit Cards: Conclusion »

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