The Due Diligence of Choosing a Credit Card

by David Bakke

due diligence

The following is a guest post from Tom Becker.

Tom works with an Australian comparison website called that allows Australians to do a quick comparison of credit cards so that they can save money and time.

It’s a shame that credit cards have received such a bad reputation over the years, because in many ways, they are quite beneficial financial products. If they are used and understood properly by consumers, they can actually be positive factors in one’s personal financial life.

That’s just the problem though. In most cases, the terms, conditions, rates, and rewards are so muddied by the lines of lingo that card companies toss at us, it can be difficult to know exactly what you’re getting into when you sign up for a credit card.

Still, we can’t just blame card companies when we find ourselves in debt up to our eyeballs, and thus, we must conduct our own due diligence when choosing the credit cards we use.

1. Read and Understand Your Rights

One of most important aspects when it comes to due diligence and credit cards, is reading and understanding your rights. Consider the time and effort many of us spend on other legally binding documents such as drawing up a will or obtaining a mortgage. We often have lawyers or other professionals review these documents before signing them, but for credit cards, a lot of us just scan the information, sign on the dotted line and hope for the best.

Now it may not be worth having a lawyer review the terms and conditions of your credit cards, but you should at least read the fine print if nothing else. Taking fifteen minutes to read that information could save you hundreds of dollars in fees and interest, not to mention undue stress and frustration down the road.

2. What Are the Introductory Rates?

You should also be aware of any introductory terms or rates. Many credit cards will start you off with a low or 0% APR for a certain number of months.

Similar to cable companies who do much the same thing, initially dangling free movie channels or upgrades to entice customers, many consumers are caught unprepared when the introductory period ends. This means that you might be carrying a huge balance on your card when this happens since you weren’t having to pay interest on it in previous months. By the time you realize those double-digit rates have kicked in, it’ll be too late, and either the card company has nailed you for the interest, you won’t be able to pay off your full balance, or both.

So be sure to know how long the introductory rate lasts, as well as what your rate will climb to once your introductory period is over.

3. Does it Offer Any Rewards?

On the flip side of those horrifically high interest rates, are the types of rewards a card might offer. When deciding on a credit card, consider what rewards are most valuable to you. If you travel frequently, you might want to consider a card that offers frequent flier miles or gas discounts. If you are a heavy shopper, maybe a card that offers cash back or store discounts would be preferable.

4. What Are the Fees?

Credit card companies are great at finding inventive ways to charge us. They have a whole variety of ways to skew numbers or get creative with percentages and fee amounts. There may be late fees, cash advance fees, yearly fees, minimum monthly interest charges, inactivity fees, and a slew of other finely tuned ways to pull money from consumers, so be wary of and understand what fees are involved with your credit cards.

5. What is the Credit Limit?

You don’t want to be caught by surprise when it comes to how much you can charge to your credit card. If you’re planning to use a card for extensive traveling, large business dinners, or purchasing equipment for your company, you’ll likely need more than a $500 limit. Make sure you understand what your limit is to avoid embarrassing and possibly costly situations involving payment with your credit card.

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