How to Choose the Right Credit Card

Once you've decided what you want in a card, choosing the best one is just a matter of comparing offers. You can narrow down your options by answering three questions.

Do you plan to pay off the card each month or carry a balance?

• If you plan to carry a balance from month to month (even if you don't plan on it but past behavior indicates you probably will), make a low annual percentage rate (APR) the single essential feature for any card you choose. APR is the annual cost of using the credit. The annual fee may also be a consideration, but if your balance is large enough (and the difference in interest rates is great enough), the savings you get from a lower interest rate would likely more than make up for it.
• If you won't be carrying a balance, the interest rate won't be important, so look for a card with no annual fee.
• Understand the difference between a credit card and a charge card before accepting either. A charge card does not allow you to carry a balance - you have to pay off your purchases in full every month - and charges you an annual fee in exchange for a variety of benefits, such as frequent flier miles or traveler's checks.

Do you need a reasonable long-term interest rate or the lowest introductory rate possible?

• If you plan to transfer a large balance from another card and pay it off over a short period, look for the lowest and longest-lasting "teaser" rate. Teaser rates typically last from three to nine months.
• If you're not sure you can pay off your balance during the intro period, or if you plan to use the card and carry a balance in the future, you may be better off choosing a card with a decent long-term rate than picking a card with an ultra-low teaser rate that skyrockets later on.

Do you want your card to offer special incentives, rewards or services?

• If you're going to use credit anyway, look for a card that gives something back. For instance, if you like to travel, consider a card that awards you with airline miles for making purchases or carrying a balance. If you plan to buy a car soon, you might find a card that offers a discount on a particular make of vehicle. There are also cards that offer points to be used to purchase all sorts of things at a discount. In other words, there's probably a card that offers some incentive or reward that would be useful to you.
• Don't spend money or carry a balance just to get the "prize." The important thing to remember with incentive cards is that you're spending real money to get those miles, gifts and discounts. If you also pay interest on your charges, you may end up spending more on that "free" plane ticket than you would have if you had bought it directly.

Now that you've answered the most important questions, you can shred the card offers that don't meet all your credit criteria, compare the terms (like interest rates, late fees and grace period) on the offers you have left, and choose the ideal card for you.