Because every application requires a credit pull, it’s important to perform a credit card comparison before you apply for a new card. The most important features of the card will vary widely based on your current credit situation and how you plan on using the card going forward. For instance, a borrower with strong credit who’s looking for better rewards for dining out or travel will be focused on much different features than a borrower with average credit that’s hoping to save money each month or pay down an oversized balance.
For that reason, there isn’t one particular feature to look for when you’re doing a credit card comparison; instead, you want to have a general understanding of common discounts and promotional terms that credit card companies offer and then target a card that meets your specific needs.
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With that in mind, let’s explore some of those terms and break down scenarios where they’ll be most relevant for you.
Credit Card Comparison Primer
Promotional APR – This is one of the two most important considerations if you’re a new borrower looking to build credit or if you’re working on repairing your credit. Companies frequently offer a promotional borrowing rate that is much lower than their normal annual rates. Depending on the card, you can find promotional APRs that are as short as the federally mandated six months or last 12 months, 18 months or even longer. It’s not uncommon to find 0% promotional APRs, which is great for new borrowers as it allows them to acclimate to credit card spending without incurring interest on the balance.
For borrowers that are repairing credit or paying down outsized debt, this promotional period offers a window of time where every payment goes straight to the principal. Ideally, if you’re paying down debt, you’re not using the card for new expenditures and are taking advantage of the promotional APR to reduce your rates. This brings us to the other feature that’s very important for high-debt borrowers performing a credit card comparison:
Transfer fees – If you’re a new borrower you can ignore these, but if you’re currently carrying a high amount of debt that you’re trying to pay down, these terms are very important. A card that offers zero transfer fees on top of an attractive promotional APR gives you the opportunity to transfer high-interest debt from other cards to your new lower-interest card. That’s not to say you should ignore cards that charge a fee for transfers when doing a credit card comparison.
Even a card with a 3-5% transfer fee saves you money if you’re transferring a balance from a card charging 16% to a card offering a 12-month 0% promotional APR. It is important, however, to exercise discipline and use that promotional period to reduce your debt. If you don’t make changes to your spending habits all you’re doing is paying that transfer fee to accumulate more debt during the promotional APR window. When that window closes, you’ll just be left with the same balance at a higher annual rate plus that 3-5% fee!
Annual fees – There are a wide variety of no-fee credit cards out there if you’re establishing credit or paying down debt, but if you’re looking for a higher-limit card or a card that offers perks you may have to pay for it. Cards that offer the best rewards programs typically command annual fees in the $99-299 range. For the right borrower, these are certainly not outlandish, but you want to be sure that you’re recouping more value from the card than what you’re paying in annual fees.
Rewards programs – Because there are so many different rewards programs out there, from cash back on daily expenses, to specialty programs targeting travel, dining out, or experiences, the best way to think of rewards in a credit card comparison is to make sure those benefits align with your lifestyle (especially if you’re paying those aforementioned fees).
The rewards programs shouldn’t be your primary consideration when looking at different cards unless you have a strong credit history and a repair/rebuild is not a factor. If that’s the case and you’re planning on significantly increasing travel (if you’re in or approaching retirement for instance), then consider cards that work with your preferred airline, offer international travel rewards, or cover costs such as TSA PreCheck or CLEAR.
Retailer discounts – Credit cards from specific retailers generally don’t offer the best rates or terms, but there is one exception that makes them relevant in a credit card comparison: large one-time purchases (especially if you would otherwise be paying for that purchase in cash). If you’re making a big-ticket purchase like electronics, appliances or furniture, and the retailer is offering a 5-10% discount with a new card, you could save hundreds or thousands of dollars.
Like the rewards programs above, you should only be taking advantage of a retailer discount in limited scenarios when you already have strong credit and good financial habits.
What’s the most important feature for you when shopping for a new card or performing a credit card comparison?