Credit card smarts: Tips for picking the right card and leveraging credit

When it comes to the benefit of credit cards, people have two stances. Either they believe they are good because they empower people to build credit and provide needed power, or they view them as bad because they encourage people to overspend and fall into debt. The truth is, credit cards can be both good and bad—depending on the borrower.

The good: credit cards make it easy to purchase things, and they help borrowers establish good credit by demonstrating that they have the ability and character to repay debt obligations in a timely manner. Building a strong credit history can lead to obtaining other forms of credit, such as car loans and mortgages, with more ease and better terms.

The not so good: according to the Federal Reserve’s G.19 report on consumer credit, total U.S. outstanding revolving debt, which is chiefly made up of credit card balances, was $884.8 billion as of January 2015.1 And it’s a growing problem, costing consumers an average of $2,630 per year in interest.2

However, credit cards don’t have to be such a double-edged sword. In fact with a little effort you can secure a credit card with great terms that suits your needs and spending profile, which will help you reduce fees and maximize rewards.

Getting started

Every time you apply for credit, it gets reported with the credit bureaus and lowers your credit score. So do your homework ahead of time. Compare and contrast offers, but first, consider which type of credit card best fits your needs.

· Revolving: This is the traditional credit card, which allows you to make purchases and pay all or part of the outstanding balance on a defined schedule. Once all or a portion of the borrowed balance is paid, that amount becomes available again as credit.

· Charge: This card is similar to a revolving credit card in that you can make purchases and take out cash advances. The difference is that you cannot carry a monthly balance. The benefit of a charge card is that you will not accrue interest on your debt.

· Secured: This card requires collateral for approval. Your borrowing limit is determined by the amount of deposit you make to secure the card. It is a good option for those with little or no credit history.

· Rewards: Reward cards work the same as traditional credit cards but offer rewards, cash back and/or flyer miles in return for your spending.

· Student: Designed for students enrolled in an accredited four-year college or university, student cards are great for establishing a positive credit history.

Once you determine the best cards for your needs, begin comparing offers from a variety of financial institutions.

Review and compare the following:

Interest rates: Different issuers of national bank cards such as VISA, MasterCard and Discover usually charge different interest rates.

Annual fees: Many of today’s cards do not charge an annual fee. However, don’t automatically remove cards with annual fees from consideration. They may have additional perks and benefits that will help you save money and stretch out the value of your dollar.

Introductory offers: Some issuers offer a 0 percent Introductory APR credit cards for the first 12 to 18 billing cycles for purchases and for any balance transfers. Make sure to read the fine print because some cards may charge a two to four percent balance transfer fee. Other cards may jump to a high interest rate when the introductory period expires.

Rewards: Whether it’s miles, points, cash back or rewards, review how they accrue. Is the offer valid only during specific times? Are there limits on the amount for purchases you can claim with these offers? Some cards may offer promotions for spending a specific amount of money over a set amount of time in order to receive the extra cash back bonus or rewards. Know the details.

Features: Account alerts, FICO credit score tracking, no penalty APR, travel insurance and fraud detection are some additional features that can increase the value of the credit card. Don’t overlook these benefits when comparing offers.

Spend smart

Credit is only good if you allow it to work for you—not against you. And rewards and financial incentives can be great ways to earn extra cash and benefits on regular purchases, such as groceries, bills and gas. But make sure you never borrow more than you can afford to repay and always try to repay your balances in full every month. If you can’t repay your full balance, at least pay more than the minimum balance due. This will ensure that you begin building the credit history you need to secure the best rates and terms for future large purchases, like a home or car.

1. “Consumer Credit Report – G.19,” Federal Reserve, Jan. 8, 2016.

2. Erin El Issa, “2015 American Household Credit Card Debt Study,” NerdWallet.

Jane Ensley manages the Enumclaw branch.