The First Thing to Do When You Get a New Credit Card

When many people receive a new credit card in the mail, they just want to activate it and go out to spend with it. But not so fast.

The first thing that you should do when you receive a new credit card is to familiarize yourself with its interest rates, fees, rewards and benefits. When you get a new credit card, you’re supplied with a lot of materials like your cardholder agreement. Your first task is to read through the terms of your card and here’s what you should look for.

Start With the Interest Rates

Nearly every credit card disaster story includes a part the where someone realizes that they had no idea about a certain aspect of their card. But by examining the details of your card before you use it, you can ensure that it won’t happen to you.

First look at the standard interest rate, which is expressed in terms of APR, or annual percentage rate. This is the rate that you will typically pay if you carry a balance on your card. And when this rate is divided by 365, it gets applied to your balance each day. Nevertheless, your credit card’s terms and conditions will spell out how to avoid incurring interest on your charges by paying your statement balance in full and on time. In some cases, new account holders are eligible to receive 0% APR promotional financing for a limited time, and, if applicable, these terms will be indicated as part of the standard APR.

Another interest rate that may apply is the card’s balance transfer APR. This is the rate that interest will be applied to any balance you transfer that you make from another credit card. And if any promotional financing offers apply to balance transfers, this is where it will be listed. Other interest rates that may apply can include the cash advance APR, the overdraft APR and the penalty APR. With the penalty APR, the terms and conditions will specify not just the rate, but the circumstances when this rate will apply, such as after a late payment is made.

Your standard interest rate will vary depending on your credit score, so don’t be surprised if the interest rate on your card isn’t the lowest one advertised by the issuer if you have less-than-excellent credit. (You can check your credit scores for free on Credit.com to see where you stand.)

Understand Your Fees

After interest rates, the next most important terms to be aware of are the card’s fees. Cardholders should know what annual fee they can expect, as well as any other fees for specific services. For example, most credit cards will charge a balance-transfer fee of a percentage of the amount transferred, typically 3%.

If you would ever consider using your credit card at an ATM, you should be aware of cash advance fees that can be as high as 5%.

Those who travel outside the U.S. should learn if their card has a foreign transaction fee. Many cards charge 3% on all charges processed outside of the United States, but thankfully, some card issuers have eliminated this charge. And finally, cardholders should learn what their card’s late payment fee is — which should give them a good reason to avoid it.

Finish by Learning About Rewards & Benefits

With the potentially costly topics of interest rates and fees behind you, it is now time to consider a more pleasant subjects like rewards and benefits. If you are using a rewards credit card you will want to know how many points, miles or dollars back you will receive for various types of purchases, and if there are any annual limits to the amount of rewards you can earn. You should also learn about the terms of any sign-up bonus promised, such as minimum spending requirements within a limited period of time. In addition, you should also start learning about the best ways to redeem your rewards, although that can wait until you have begun earning some.

Finally, most credit cards now come with a wide range of travel insurance and purchase protection benefits, including rental car insurance, extended warranty coverage and purchase protection policies. Cardholders should spend a few minutes reading about these in an included “guide to benefits” pamphlet. For example, anyone relying on their rental car insurance should understand when the coverage applies, and what is excluded. The same applies to purchase protection coverages such as extended warranty coverage and price guarantee policies, as each of these benefits has a long list of excluded items.

By familiarizing yourself with all aspects of your credit card before you begin using it, you can be sure to gain the most from it, while spending the least to enjoy the benefits.