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Choosing the Right Credit Card for You
Consider the interest rates
If you plan to pay your balance in full every month and don't use the card for cash advances or cash-like transactions, you won't pay any interest. In this case, the interest rate may not be an important factor in choosing a credit card.
However, if you usually carry a balance on your credit card, you may benefit from switching to a low-interest rate card, even if it has an annual fee. Many regular credit cards, including standard, gold and platinum cards, have low-rate options available.
Example: comparing low-rate cards to regular-rate cards
Samantha already has a credit card and is trying to decide whether she should switch to a low-rate card. She regularly carries a balance. She compares two credit cards:
- a regular card with an interest rate of 19% and no annual fee;
- a low-rate card with an interest rate of 12% and an annual fee of $50.
Samantha then compares the total costs of the cards, including annual fees and interest, for two different outstanding balances for a year: $500.00 and $1,000.00.
Assumptions:
- The outstanding balance stays the same for the whole year.
- All transaction types have the same interest rate.
Regular-rate (19%) |
|||
|---|---|---|---|
Balance owing |
Interest |
Annual fee |
Annual cost (not including payment of balance) |
$500.00 |
$95.00 |
$0 |
$95.00 |
$1,000.00 |
$190.00 |
$0 |
$190.00 |
Low-rate (12%) |
|||
|---|---|---|---|
Balance owing |
Interest |
Annual fee |
Annual cost (not including payment of balance) |
$500.00 |
$60.00 |
$50.00 |
$110.00 |
$1,000.00 |
$120.00 |
$50.00 |
$170.00 |
If Samantha carries a balance of $500.00, the regular-rate card is less expensive because it has no annual fee. However, as the amount she owes increases, the interest rates make a greater difference. With a balance of $1,000 owing, the low-rate card's annual cost is $20 less expensive than the regular-rate card's. However, she will still pay $170.00 in fees and interest.
Samantha should aim to pay off this debt as fast as possible to reduce the interest she has to pay every month.
Introductory low-rate offers
To encourage you to apply for their cards, some credit card issuers will sometimes offer low introductory interest rates on newly issued credit cards and on balance transfers. (A balance transfer is the transfer of an outstanding credit card balance from one card to another.) Generally, the low-interest rate will apply for a limited time only. As soon as the introductory period ends, the rate increases to the card's usual rate.
Read the application or agreement carefully to be sure that you understand exactly when the promotional rate ends and what the interest will be at that time. Also, consider these questions:
- What type(s) of transactions does the introductory low-rate apply to?
Credit card issuers can charge different interest rates for different types of transactions, such as balance transfers and purchases. Some low introductory rates apply only to a certain type of transaction. Be sure you know what the low rate covers. - Are there any other fees or conditions that apply to the offer?
For example, will the introductory rate end if you make a late payment or if you go over your credit limit? If so, what will the new rate be? - What interest rate will apply at the end of the introductory period?
You can compare interest rates using FCAC's Credit Card Selector Tool
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