By: kjmena

Using a credit card responsibly is an ideal way to grow your credit history and increase your FICO score. However, applying for a card comes with a lot of unfamiliar jargon and intimidating terms and conditions. Before you select a card and submit your application, learn what credit mistakes to avoid and review helpful hints to make the process go more smoothly.

Annual Fees

More and more credit card companies have begun tacking on annual fees for card holders to account for potential benefits. But before you assume this is the only option, evaluate the advantages of the card to ensure the fee is worth it. There are plenty of cards available without fees, though they don’t generally come with any perks. The most common type of credit card with an annual fee is one with a member rewards program. There are a variety of programs to suit different interests, such as travel rewards, cash back, and gas rewards. If you frequently make these purchases, the annual fee may quickly pay for itself with the benefits you receive. However, this is only true if you pay off your card each month; points are only given on paid balances and you won’t be doing yourself any favors if you rack up debt you can’t afford in the name of trying to earn money through a rewards program.

Another common ploy used by credit card companies to lure in new card holders is to waive the fee for the first year. This can be tempting but again, make sure that the benefits will continue to outweigh the cost of the fee in the following year. While you can always cancel your card to avoid paying next year’s fee, your credit score will likely be affected by frequent closing of credit accounts. It’s generally not wise to make a habit of this practice so only open credit card accounts that you know you’ll use for a while.

Introductory Rate

Another tactic credit card companies use to get new customers it to offer a low introductory rate. Lasting at least six months and sometimes up to a year, a promotional rate is much lower than the average credit card’s Annual Percentage Rate (APR). Before choosing a card with a low teaser rate, find out what the rate will be after the introductory period. If you plan on carrying a balance, make sure you won’t be subjected to an exceptionally high interest rate.

Additionally, the credit card company may change your rate if certain triggers occur. For example, if you are more than 60 days late on a payment, your creditor can revert your rate back to the standard APR. The same is also true if you exceed your credit limit. While you must be notified of a rate change within a certain timeframe, creditors generally have a lot of leeway in when any why they can change your interest rate. Consequently, it’s best to keep your balance low (or, ideally, at zero) so that your finances aren’t caught off guard by any unexpected increases.

Balance Transfer Rates

Low interest balance transfers may seem like a great idea if you already carry credit card debt. Credit card companies offer low rates, sometimes even 0%, if you transfer your balance from another card. However, while a lower rate may seem appealing, most of these offers also require a balance transfer fee. Usually around 3% of your total debt transferred, this amount is owed upfront. Use a balance transfer fee calculator to help you determine whether you’ll end up saving money in the long run.

When considering a credit card with a low balance transfer rate, analyze the card’s regular rates. If you still have a balance after the introductory period, you might end up paying even more than if you had stuck with your initial credit card if the post-promotional rate is higher. Before making the switch, create a financial game plan to pay off as much of your balance as possible before your APR increases.

Grace Periods

Another detail of every card’s terms and conditions is the grace period for payments. If you’re late making a payment then at some point you’ll be charged extra interest and a late fee. The traditional grace period length is 25 days but many credit card companies have reduced this to just 20 days, or even no grace period at all. Don’t just assume your new card has the same terms as your old one and always be sure to review each card’s terms to know exactly what you’re getting yourself into.

Application Overload

Even if you’re unsure about your eligibility for a credit card, don’t automatically apply to several cards to see which ones approve you. This practice is important to avoid because credit card companies make a hard inquiry into your credit report with every application you submit. Your credit score may be lowered and other lenders may view it as a red flag that you might be facing financial hardship and represent more of a risk. This can affect your future ability to get competitive rates on a mortgage, car loans, or even other credit cards. Prioritize which cards suit your needs the best, and apply for one at a time to avoid excessive pulls on your credit report. Additionally, you can talk to the creditor in advance to see what kind of credit they require for the card you’re considering. If you know what credit score range you’re in, this will give you an idea of how likely you are to qualify and whether or not it’s worth submitting an application.

Don’t be alarmed by these various credit warnings; instead, arm yourself with this knowledge to get the best rates, terms, and conditions on your next credit card.