Friday, October 27, 2017

Thrifty Thinking: Choosing the Right Card

As consumers gear up for back to school spending and soon holiday shopping, they’re often looking for the “perfect” credit card to match their needs. Unfortunately, a national survey by Experian found that consumers are overwhelmed by the many credit card offers and find it difficult to navigate selecting the right card. I recently had the chance to interview Sandra A. Bernardo is senior manager of Consumer Education at Experian Consumer Services about what consumers are looking for in a credit card.

Why are rewards and not having an annual fee the top things consumers want in a credit card?
The survey didn’t explore the reasons why but we can speculate that consumers are using credit cards not only for an extension of credit but as a tool to manage their finances. The average number of cards among those surveyed is three and average debt is $2,326. This shows that they are using cards as currency for daily transactions instead of few large purchases where they may not have the cash. Thirty-eight percent of survey respondents say they benefits of card use is so they don’t have to carry cash. So they want to maximize the investment of using a card and with so many options in the marketplace, it is no wonder that they seek getting rewards in return for no additional cost.  For general ongoing transactions, it makes sense to avoid an annual fee.

What are some benefits that might make an annual fee worthwhile?
Consumers selected reward points as the second highest reason why they use a card at 42% behind purchasing needed things (68%) so many are using credit cards strategically. For the frequent traveler, for example, a card with perks in addition to points may be worth the fee. Premium credit cards usually offer some sort of airport lounge access, which by itself tends to cost as much or more than the respective annual fees. In addition, they may offer numerous travel insurance and purchase protection policies, as well as some sort of concierge service that offers personalized assistance for booking travel, making dining reservations, buying gifts or completing other tasks you could ask someone to do over the phone. Finally, many cards also provide no foreign transaction fees and a few hundred dollars’ worth of travel credit to go towards travel incidentals. Consumers should analyze their last full year of travel and expenses to determine if the fee makes sense.

How can consumers make sure they're getting a competitive interest rate?
Lenders look at an individual’s credit score, among other factors in their credit report, to determine if they will extend a line of credit and at what terms. The better the credit score the better the interest rate in most cases. To make sure you have a good credit score, a few actions to take is to pay bills on time and keep credit utilization under 30 percent.  To check your Experian credit score for free, go to www.freecreditscore.com.

What can consumers do to simplify the process of deciding on a credit card?

The survey showed that consumers are overwhelmed by all of the credit card options as 69% say it’s too time consuming to research all the cards available. To begin your search, identify what card feature is most important to you, such as a low annual percentage rate (APR) or no annual fee. Also, check your credit score because that may help you  understand what cards you may qualify for since a credit score may be one of the factors lenders use to extend lines of credit. There are several sources available today where you can obtain a credit score for free. Once you have determined what your ideal card looks like, browse an online credit card marketplace that recommends cards based on your preferences.  You should be careful though – opening up several new cards in a short time span may lower your credit score. So opening too much credit at once may hurt your chances for additional credit in the future, when you may really need it for a big expense such as a car loan.

No comments:

Post a Comment