MDDCCUA Credit Union's Consumer Guide To Financial Management

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Shopping For Credit

When shopping for a bank credit card, you should first decide how you plan to use it so you can compare features. It is important to understand the difference between a charge card and a credit card. The balance on a charge card must be paid in full every month. Paying only a portion of the bill will cause your account to be delinquent. A credit card allows you to carry a balance for as long as you want, provided you make at least the minimum monthly payment due.

If you will pay your credit card bill off every month, a low annual fee is important. If you usually carry a balance, look for the lowest interest rate. Shop for a grace period, the amount of time after your purchase during which finance charges are not assessed. Some banks and finance companies give you up to 30 “free” days, while other card issuers start assessing finance charges immediately upon purchase. In fact, interest starts accruing immediately on cash advances – there is no grace period and the interest rate is higher than that applied to regular purchases.

Depending on your payment and credit use habits, you may also be affected by late and overlimit fees. (Changes in legislation have allowed credit card issuers to increase the miscellaneous fees they charge customers, so it is very important to read all the terms of the credit agreement.)

If you have no credit or a bad credit history, you may be able to obtain a secured credit card. A secured card works just like a regular VISA or MasterCard except that you must leave a deposit – usually between $250 and $500 – with the issuing bank as collateral. If you default on your payments, the bank takes the money owed out of your deposit.

The interest rate and annual fee on a secured card are often a bit higher than on a regular card. But a secured card can offer you the convenience of a regular credit card and the opportunity to improve your credit record. When comparing cards, try to find one that does not charge an application fee and confirm with the issuing bank that they will report your payment performance to at least one of the three major credit reporting bureaus – Experian, Trans Union, and Equifax. Make the most of this chance to build an unblemished credit report!

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