It’s important to compare several credit card offers before choosing one. Not only can interest rates vary from card to card, but credit card terms can also differ greatly.

First, decide how you plan to use the credit card. Is it intended for everyday purchases, travel, business expenses, or emergencies only? Do you intend to pay off your bill each month or carry a balance? No single credit card will fit all purposes. Focus on these terms when comparing credit card offers.

Credit Card Rates

Pay attention to more than just the interest rate for purchases. What’s the annual percentage rate (APR) of the card, which is the interest rate for the whole year, including all fees and costs? It’s also important to look at what the interest rate might rise to if payments are late. Credit card rates on some cards go above 30% after late payments. Also look at the interest rates for balance transfers and cash advances–these may well be different from rates for purchases. You also want to read the credit card terms closely to find out if interest is fixed or variable.

Calculation of Finance Charges

Many credit cards use the “average daily balance” method to calculate finance charges. What does this mean? The credit card company uses the average of each day’s balance during the monthly billing cycle to compute the finance charge. Look for whether new purchases that month are included in the finance charge.

Credit Card Fees

You can get socked by a ton of credit card fees if you don’t pay attention to the terms. Among the costs that may be associated with a credit card are annual fees, set-up fees, late fees, over-the-limit fees, and cash advance fees. Balance transfer credit cards may offer low interest rates, but in most cases you pay a fee for activating one of these offers.

Credit Card Rewards

Don’t assume that just because a credit card offers rewards, it’s a good deal. Credit card rewards can pay off if you actually want and use the perks being offered. Rewards can include cash back, airline miles, or points toward merchandise. But rewards cards often have higher interest rates than non-rewards cards. Also, you may find yourself spending more just to increase your rewards points. Estimate the value of rewards you expect to receive in a year and weigh this against the additional costs you may incur to get those rewards.

Choosing the right credit card can save you money over time. Read through the terms carefully and call the credit card company to get all your questions answered before signing up to avoid problems later.

Published 01/21/11 (Modified 01/24/11)