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Credit Card Ownership Basics
January 9th, 2013
Credit Card Ownership Basics

Credit Card Ownership Basics

Searching for a new credit card can be a daunting task, due in no small part to the thousands of available offers. However, once you have a plan in place, it helps to wade through products that don't serve your personal needs.

As a result, we've compiled a brief list of tips you should always keep in mind when searching for your next credit card, which you will find below. By no means is this an exhaustive directory, and we would suggest directly contacting a credit card professional should you have any questions.

1. Find out your credit rating, and understand what it means.

Your credit score is perhaps the most important piece of information used when determining the types of cards you are eligible for. In fact, your credit rating is the first thing banks will look at once you apply for one of their cards, and are categorized as no/insufficient credit, bad credit, good credit, and excellent credit.

However, before you can understand what your credit rating means, you will need to obtain it first. A simple online search can provide numerous sites that will allow you to acquire your credit rating, often free of charge. However, these free options may only provide your credit score from one reporting bureau, and it is recommended you obtain your rating from all three, as different lenders utilize information from different bureaus.

No credit/insufficient credit rating: No credit rating, as the name implies, means that there is no credit history available for an individual. This is typically the result of someone having never held a line of credit, often due to his or her young age.

An insufficient credit rating means that an individual does have a verifiable credit history, but the lines of credit are either too recent and are not reflected by any of the reporting agencies, or that the history is not sufficient enough to determine the individual's credit worthiness.

Bad credit rating: A bad credit rating usually implies that the individual may be a high credit risk, due in part to such negatives as defaults, charge offs, or a continuous history of late payments. A bad credit score can range anywhere from 400 to the 640s.

Good credit rating: A good credit rating usually falls between 640 and 739, and means that the individual is a satisfactory credit risk. Individuals with a good credit rating have a sufficient credit history, along with an overall record of timely payments, but may have a high debt-to-income ratio, or may have had one or more late payments in the past.

Excellent credit rating: The highest rank available, an excellent credit rating is typically scored as anything over 740. Individuals with an excellent credit rating are deemed to be an exceptional credit risk, due in large part to a history of paying balances in full and on time, as well as a low debt-to-income ratio.

2. Narrow down your needs.

In other words, what do you intend to do with this card?

If you are looking for cards that only have uploaded funds available, then you would be best served by a prepaid credit card. If you're in search of a card that offers bonuses on hotel and airfare expenditures, then a travel-related credit card may be the best option.

Without a solid understand of how your new card will be used, you may end up with something less than ideal.

3. Compare, compare, compare.

Once you've chosen the type of credit card you're interested in obtaining, the next step is to complete a side by side comparison of different offers from the various companies.

Depending on your individual situation, you may place more emphasis on a lower overall interest rate than a higher level of rewards. Or, you may feel it's more important to have a balance transfer option available, versus a cash back program.

While it's unlikely that you will find a card that hits every single point on your list, it's important to compare your select group of cards in order to find the one that most closely meets your needs.

4. Review the fine print.

Initially examining the details of your card is always a good idea, but thoroughly reviewing the contract is essential. Most companies will provide highlights, or bullet points, for the various features of their card, but they are by no means intended to be an exhaustive list. In order to know exactly what you're getting in to, you should contact the lender and ask for a copy of the contract.

For example, if you choose a card based on an introductory 0% APR offer, what will the interest rate increase to after the preliminary trial period is over? If you've chosen a card based on the rewards program, will the categories remain the same each month, or do they rotate on a regular basis? If you selected your new card because of the frequent flyer miles earned with each purchase, can they be used on the airline of your choice, and are there any blackout dates?

Reading the contract will also define important information such as when a payment is considered late, when and if your APR will increase, and any associated fees. Credit card contracts can be confusing due to the use of industry-specific terms, so it's always recommended to contact the lender directly for any questions.

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