How to Find the Best Credit Card

By Dawn Handschuh, Personal Finance Writer   

Credit card offers abound. You'll find a slew of card offers online, and many more may show up unsolicited in your mailbox. How do you make sense of them all and choose the best credit card for you?

Pre-approved credit card offers

While the low interest rates and high credit limits of pre-approved credit card offers are designed to sound enticing, they usually come with strings attached. In fact, the phrase "pre-approved" doesn't preclude the card issuer from checking your credit and then rejecting your application.

That's because, while credit card lenders will check your credit before making such an offer to a pre-screened group of borrowers, it may be several months before borrowers actually respond to the offer. Lenders will then recheck the borrower's credit to see if anything's changed since they first qualified the borrower. Even seemingly minor changes in your credit profile may be enough for a lender to reject an application.

Here are a few tips for weighing pre-approved credit card offers:

• Review where you stand, credit-wise. Since a turned-down credit application will zing your credit score, it's best not to apply for a credit card without fully understanding the condition of your credit and the likelihood you'll be approved.
  
  Before applying for any credit, you should check your credit report and score, since the best (lowest) rates and terms will be given to borrowers who demonstrate a responsible history of on-time payments. Checking your credit report will also give you an opportunity to clear up any factual errors in your borrowing history that could damage your credit score.
  
• Beware the vanishing introductory rate. The low interest rate offered on many pre-approved cards usually lasts for a limited period; after the introductory period expires, the rate will typically increase substantially. If you're considering transferring a balance from a higher interest-rate card to take advantage of the initial low rate, be sure to pay off the entire balance before the end of the intro rate period.
  
  Also note that there may be one annual percentage rate (APR) for purchases and higher APRs for cash advances and balance transfers. Other lenders may use a tiered APR structure, whereby one rate applies to balances below a specified dollar amount and a higher rate applies to balances above a certain amount.
  
• Read the fine print. It's essential to read the fine print on any credit card offer. Low introductory rates don't always apply to balance transfers or cash advances, for example, only new purchases. In addition, various fees may be charged for certain transactions, or annual fees may be incurred.

Online credit card offers

Most banks that make online credit card offers use Secure Sockets Layer (SSL) technology that encrypts data sent from your computer to the bank, ensuring that your personal information is protected during transmission. However, history has shown that neither online nor snail-mail transactions are foolproof, so the route you take to apply for a credit card is a personal choice.

Check the company's privacy section to confirm for yourself that it's safeguarding your personal financial information.

To minimize the chance of identity theft through phishing, don't respond to unsolicited, emailed credit card offers. Do a search yourself for a reputable credit card lender, then visit their website to access an application.

One advantage offered by online credit card offers is that many lender websites allow consumers to compare and contrast multiple credit card offers. What's more, your application is processed more quickly than a paper application that's mailed to the lender.

Whether you're more comfortable applying for a card online or responding to a mailed offer, choosing the right credit card requires a candid self-assessment of your spending patterns and personal needs.

If, for example, you rely extensively on your credit card to make purchases, you could benefit from a card that rewards you for your purchasing behavior with cash back, airline miles or points that can be redeemed for various rewards.

However, if you usually carry over a balance from month to month, the most important factor will be a low APR. Even a small variation in the APR can make a huge difference in how much interest you pay over the course of a year.

If you always pay your balance in full, be sure to pick a no-annual fee card, perhaps one that offers a longer grace period.

When considering various cards, the Federal Reserve suggests you consider these additional factors:

• Is the APR fixed or variable? (Although card issuers can change their rates at any time, they must give notice with fixed rate cards; that's not the case with variable rate cards.)
• How long is the grace period?
• How is the finance charge calculated?
• Is there a minimum finance charge?
• Is there an annual fee? (Sometimes, an annual fee card offers substantially lower interest rates, which is something to consider if you tend to carry a balance.)
• What is the cash advance fee and balance transfer fee?
• What are the fees for late payments or for being over the credit limit?
• What is my credit limit? What happens if I exceed that?
• Does the card offer special incentives, such as rebates, phone call minutes or car rental insurance?
• Is there an application fee or processing fee?
• Is there an account termination fee?'
• How will I learn of any changes made in the contract?
• Can I pay my bill online?

Remember, when it comes to credit cards, the lender is in the driver's seat. Credit card lenders have the ability to change the terms at any time. That's why the burden is on you to read the fine print and understand exactly what you're signing up for when you accept the terms of the agreement.