Remember, you should consider if you actually want or need a credit card. Is it worth putting yourself into debt? Always be careful using your card, don't overspend, it can take a long time to pay back.

Which Type of Credit Card

The first thing you will need to consider is which type of credit card you need. Or which protocol the card uses. The main consideration here is where you need to use the card. The three major types are Visa, MasterCard, and American Express. These are the 3 cards that are accepted internationally. Other types may be available locally, but don't expect international coverage from these.

Visa cards probably the most widely accepted all over the word. If a place accepts credit cards, it's fair to assume they will accept Visa. Visa is also able to quickly arrange replacement cards if lost overseas. Most ATM's (cash machines) also accept visa for cash advances if you require it.

MasterCard is also very widely accepted, although in some places it is known by a different name (such as Eurocard). It has most of the benefit of Visa. Many budget credit cards choose to use MasterCard as their protocol.

American Express (AMEX) is accepted all over the world, but often shops choose not to accept it. This is because American Express charge the vendors much more than the other cards. However this is often returned to the user in the form of frequent flyer points or other bonus schemes. Many people who use American Express cards use them for these bonuses, but have a back-up in case they are not accepted.

Budget vs Fully Featured cards.

The next decision you need to make is weather you want a budget credit card with a low interest rate, or a fully featured card with things like rewards programmes. There are many companies (such as virgin) now offering budget credit cards with much lower interest rates than the banks. However don't expect to be earning frequent flyer points on these.

Budget cards with the lowest interest rates are most suited for most people. This is especially true if you intend to have a balance on the card, rather than paying it off at the end of each month. Many people pay their credit card debt off completely at the end of each month, so interest is not important to them. But if you don't intend to do this, you should be looking for the lowest interest rate available. The money saved will normally far out way the advantages of a rewards programme.

Premium cards are cards such as American Express or other cards with good rewards programmes (such as ANZ's Qantas frequent flyer card, in Australia). Normally these will have a much higher rate of interest. So if you are in debt, it is best to have the debt on a budget card. However if you intend to pay the balance at the end of each month, and hence never pay interest, these cards could be for you. By making all your daily purchases on your credit card, you can accumulate a considerable amount of reward points. Normally the best cards allow you to transfer these points to your airlines frequent flyer account. You should always check the rate of exchange to frequent flyer point. Some cards offer 1 for 1 exchange, other 2 for 1. If you are after rewards, check that the rewards programme is really worthwhile.

Credit Limits & Using Your Card

After you have chosen a card, you should consider what limit you want. Some bank even offer cards with no credit, these are in fact a debit card, but with the purchasing power of a credit card. This type of card could be for you if you don't want to go into debt.

Always calculate how long it will take to pay off your limit. Often you will be given a limit much higher than you can easily pay back. If you are undisciplined with your card, consider asking your bank to reduce this limit.

For example, if you can spare $100 a week from your pay packet, it will take you 10 weeks to pay back a debt of $1000. This doesn't factor in the interest you will be charged. Do this calculation for yourself, and remember you shouldn't go into debt beyond what you can afford. It if want to make a large purchase, consider if it can wait until you can save the money. This way you can be earning the interest in a high-interest account, instead of paying it to someone else.

With most cards it's possible to pay extra money into it first. Effectively putting your credit card into credit. You could then use it like a debit card, only spending money you already have. This can also be an effective way to boost your frequent flyer point. Credit card company charge the shop vendors for each transaction, so they don't really have a problem with you doing this.

In summary, do your research. Surf the web a little, and check out each companies site to see what they have to offer, and how much it will cost you. Remember to carefully check annual fees and interest rates, and calculate how much they will really cost you.

The Money Wombat.

Find more basic tips to help you find and save money at The Money Wombat.