Selecting a Credit Card

Visa/MC cards may look alike, but fine print discloses worlds of difference.

Bank credit cards such as MasterCard or Visa provide consumers with what is known as a form of revolving credit. These credit cards allow consumers to borrow against a pre-established maximum credit line. As payments are made and the account balance reduced, the amount of principal repaid is automatically added back into the credit line.

Although bank credit cards may all look the same, they can vary widely in terms of interest rates and annual fees. If you decide to apply for a bank credit card, you should carefully read the Truth in Lending disclosures on the application in regard to the costs associated with a particular credit card.

While some bank credit card issuers still provide cards with no annual fee, other banks may charge as much as $75 annually to a credit card member. And interest rates may vary widely, from as little as 9.9 percent to 20 percent or more. Because personal credit card interest charges are no longer deductible on your federal income tax return, you should carefully consider applying for a card with a lower rate rather than holding and using a card which charges a higher rate of interest. Of course, the better your credit record, the easier it becomes to get a low interest card, since these cards are usually issued only to consumers with outstanding credit.

You should also compare the grace period provided by the various card issuers you are considering. Some card issuers offer a 25-day grace period, during which it charges no interest on your account. Others begin to charge interest from the day a purchase you make with your credit card is "posted" or received by the card issuer. With modern electronic communications, that's often the same day you use the card. Obviously, the longer the grace period, the better.

If you plan to use your card to obtain cash advances at a bank or through automatic teller machines, you need to know what charges you will incur by doing so. For example, some cards charge a minimum fee of 2 percent of the amount of the transaction, or $10, whichever is greater. And interest charges usually begin to accrue immediately, even if you normally have a grace period when you use the card to purchase merchandise or services.

Most credit card issuers now offer some kind of premium card, usually a gold, silver, or even platinum card. These cards usually come with higher credit lines, additional services, and incentives such as rebates and rental car insurance, discounts on long distance telephone calls, and medical and legal referral services. None of this is free, however, and these premium cards usually require an additional annual fee and may charge a slightly higher interest rate.

In some areas of the country, there has been a proliferation of so-called "shopper's cards," which allow consumers to make purchases from a catalog and finance those purchases on the company's own credit card. You may have received a solicitation in the mail, telling you that you've been pre-approved for one of these cards, which the mailing refers to as a "Gold Card," often with a very high credit limit of $5,000 or even more.

It's only after you agree to take the card, however, that you learn about the restrictions placed on its use. In most cases, you will find that the merchandise contained in the catalogs you are required to make your purchases from is priced much higher than what you would find in many retail or discount stores.

Because most of these shopper's cards require you to pay an initial fee and charge relatively high interest rates, you may end up spending significantly more for your purchases than you would if you had made them elsewhere. And because many of these operations are here today and gone tomorrow, you may end up holding a card which is of no value when the company closes its doors without warning.