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When used properly, a credit card can be a helpful financial tool. A card with a lower interest rate and fewer fees can be a good choice for making routine purchases, handling an unexpected expense, earning rewards, building credit history, and shielding against the effects of fraud.

To help you choose more wisely from the multitudes of credit card options and offers, Michigan Schools and Government Credit Union (MSGCU) has identified eight facts about credit cards you should know:

1. The rate isn’t the only cost to you.

When it comes to comparing credit cards, the Annual Percentage Rate (APR) is the obvious go-to, though it is likely not the only cost to you.

“Credit card issuers advertise rates and rewards to attract customers,” explains Norman Hedges, Lending Product Manager of MSGCU. “However, various unexpected fees can contribute to the overall cost of your card.”

Hedges advises consumers to always check fees when evaluating cards, including annual fees, balance transfer fees, cash advance fees, foreign transaction fees, and even default fees.

2. Rates vary and the differences can be significant.

24%, 14%, 11%...many financial institutions set their APRs by adding a premium to a fluctuating base rate. Your best bet is to find a card that offers a fixed rate, meaning that the rate will not change over time.

“It’s important to know that different lenders charge different rates. Consumers need to shop for and compare credit cards just as they would any other product,” says Hedges.

Also, some card issuers charge different rates for various types of transactions. What is the rate you will pay on purchases? What about on cash advances? When considering a new card, be sure to review the fine print before you apply.

3. Promotional offers frequently have a cost.

Just because it says 0% interest on balance transfers doesn’t mean it will cost you nothing. There are often fees associated with balance transfers based on a percentage of the total amount you’re transferring. Do your homework and compare the cost of the fee to the amount you’ll save in interest. Or, even better, choose a card that doesn’t charge a fee for balance transfers. 

For example, if you were to transfer $5,000 to a card that offers a 0% intro offer but charges a 5% balance transfer fee, you would still pay $250 in fees. Compare this to transferring $5,000 to a card that offers a 2.99% intro offer and no balance transfer fee, you would only pay $81 in interest if you were to pay it off in 12 months.

4. Rewards are benefits when you have a plan. 

Cash back, travel, merchandise — rewards are part of many credit cards and can be a true benefit if you create and follow a plan for purchases and repayment.

“I see people succeeding with rewards credit cards when they plan to spend a certain dollar amount and then pay off that amount each month,” says Hedges. “Many choose a rewards credit card for reoccurring expenses such as groceries and gas. At the end of the month, they pay off their balance and collect their rewards.”

Also, to save even more money, look for a rewards credit card that doesn’t charge an annual or reward redemption fee.

5. A penalty fee is different than a penalty APR.

Missing a payment can result in a one-time fee as well as a higher penalty APR. Understanding the difference is important. A penalty APR changes the original interest rate agreed upon between lender and borrower. In many cases, this higher penalty rate can be in effect for several months. Even if you have no history of missing payments, try to choose a card with no penalty APR or penalty fee.

6. International usage frequently costs more.

Many people get a credit card for the convenience of using it when they travel, however be aware there are frequently costs associated with international transactions. Foreign transaction fees typically range from 1-3% of the purchase amount, depending on the card issuer.

“A 3% fee may not seem like much, but it adds up over the course of an entire trip,” says Hedges, “especially for a frequent traveler.”

If you have an upcoming trip planned, check with your credit card providers to understand what they charge so you can take the best option with you when you travel abroad.

7. Security agreements vary.

If someone fraudulently uses your credit card, who is responsible for those costs? How does your credit card provider protect you? Be sure you have the answers to these questions as you evaluate the credit cards in your wallet.

“While there are basic standards, not all security agreements are created equal. When you’re evaluating a card’s merits, add security to your list,” says Hedges.

At a minimum, look for a card that offers zero-liability protection, which means that the card issuer will cover the full amount of any reported fraudulent transactions.

8. Credit cards work best when you have a plan.

To use a credit card to your advantage, be sure you plan ahead for necessary purchases as well as repayment to avoid pitfalls such as mounting balances and higher interest costs, which can make your purchases more expensive than you intended.

“I can’t stress this enough, having a plan to pay for purchases before you choose a credit card can help protect you from overspending and overpaying in interest and fees,” says Hedges. “It really comes down to budgeting and understanding your current and future cash flow.”

Hedges adds that it doesn’t have to be a solo endeavor. Many credit unions offer free financial counseling as a benefit to their members. To learn more about the visa credit cards from Michigan Schools and Government Credit Union, visit msgcu.org/creditcards

Members of the editorial and news staff of The Detroit News were not involved in the creation of this content.

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