When looking at credit cards, most people focus on the interest rate the card says it offers. While this is an important consideration for people who will carry a balance from one month to the next, it’s not the only thing that matters when looking at credit cards. A card with a "fixed interest rate" can change for any number of reasons, and if you chose your credit card based on the interest rate alone, you could end up very disappointed.
In addition to the interest rate, you should consider whether or not the card offers a grace period. It used to be all credit cards had a grace period of 20 or 25 days. During this period of time, you could pay off your card balance in full and not get charged interest. The grace periods of credit cards is shrinking, some cards don’t offer a grace period at all and begin charging interest from the moment of purchase, and other lenders are sending their statements out so late that it’s almost impossible to mail your payment back in before the grace period is over. If you are someone who tries to pay your credit card balance off in full each month instead of carrying it from month to month, the grace period is probably more important tot you then the interest rate.
If you do carry a balance from month to month generally, you’ll want to take a look at how your payments are applied. If you have different interest rates for balance transfers, new purchases, or cash advances – how will your payments be applied? Will they apply your payment to the lowest interest balance first, or the balance carrying the highest interest? Will your payment be applied to your oldest purchases first or your late fees and penalties?
Remember the long term interest rate is more important than the promotional interest rate, also. Just because a card offers 0% interest for six months on new purchases doesn’t make it the perfect card for you if the interest rate is 27% after the first six months!
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