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5 ways to know you've got the wrong credit card for you

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You had a closet full of clothes you adored as a teenager, but that doesn't mean you'd wear them now, right? The same thing goes for your credit card. Just because it worked for you 10 years ago doesn't mean it's a great fit for you today.

"As consumers, we evolve, and our needs change," says Bruce McClary, media relations coordinator for ClearPoint Credit Counseling Solutions in Richmond, Va. It only makes sense that our credit card changes along with us.

5 ways to know you've got the wrong credit card for youUnfortunately, we sometimes cling to an old card out of brand loyalty or sheer force of habit. But that can cost you cash in the form of useless fees, high interest rates and rewards you just can't use. Plus, you may be missing out on other advantages, such as the chance to pump up your credit history.

Granted, there's something to be said for keeping a credit card for a while, since a long history with a single creditor can boost your credit score. But if you haven't swapped cards since Bill Clinton was in office, make sure you're not making these mistakes:

Mistake No. 1: You carry a balance every month, but you have a really high interest rate.
Welcome to the club, you're thinking. In this economy, who can get a great interest rate? Actually, it may not be as tough as you think. The average APR on a new credit card offer on Oct. 1, 2010, was 14.34 percent; meanwhile, the average default rate, which goes to cardholders who make late payments or other serious stumbles, was 27.88 percent. Even if you've been paying on time and have good credit, your credit issuer may have nudged your APR up around 20 percent.

On a big balance, sticking with that higher interest rate can cost you some serious cash. For instance, paid off over two years, a $5,000 balance on a card with a 21.99 percent APR will cost you about $1,225 in interest. With the 14 percent rate, you'll pay about $463 less. Of course, "moving debt around is not becoming debt-free," warns Gail Cunningham, vice president of public relations for the National Foundation for Credit Counseling. "You think, 'That new card we got has a really low interest rate, so surely it won't hurt to charge a little on it.' You add to the existing debt, and then when the introductory rate expires, you owe more than when you began."

Jumping from card to card can ding your credit report, too. But if you're committed to whittling away your balance before a low introductory rate rebounds, go to CreditCards.com's balance transfer credit card page to find a card that works for you. Or negotiate with your current card issuer for a lower APR. If they think of you as a valued customer, they may be willing to jump through a few hoops to keep you.

Mistake No. 2: You still have a secured credit card even though your credit score is on the mend.
For credit card newbies or consumers with a Swiss-cheese credit history, a secured card -- one where you deposit your own money before you start spending -- is usually a smart way to build up a decent credit history. But according to McClary, it's not a card you want to live with forever. "It's the bottom rung of consumer credit card offerings at the most subprime level. So, once a year, check your credit score and see if it's where it needs to be for you to graduate to an unsecured credit card with a low rate and better terms."

What's the magic credit score number? It's a moving target, but aim for the high 500s or 600s before you start applying. CreditCards.com's list of credit cards for those with fair credit provides a good starting point.

Mistake No. 3: You pay an annual fee but don't take advantage of the perks.
With 3 in 4 new card offers touting no annual fees, you've got to have a pretty good reason for shelling out $18 to $150 (and up) just for the privilege of keeping a card in your wallet. For some cardholders, generous rewards and better perks are reason enough, but if you can't remember the last time you actually used one of those rewards, it's time to rethink your card strategy.

For Galia Gichon, founder of DowntoEarthFinance.com, "the only reason to pay an annual fee is for frequent flier miles. But ask yourself if you've used a free flight in the last two years." If not, earn rewards with a no-fee card instead.

Mistake No. 4: You're racking up business expenses but you don't have a dedicated business card.
For entrepreneurs and self-employed people, it's simple to charge business expenses to your personal credit card. But that's not necessarily smart. "I work with a lot of entrepreneurs," says Gichon, "and I'm a big fan of keeping personal and business expenses separate. You get more organized, you're more conscious of your cash flow, and when it comes time for taxes, your business credit card really helps you quantify deductions."

Mistake No. 5: You're still collecting travel rewards, even though you never have time to go anywhere.
You may have opted for travel rewards back in the day when you still dreamed of your grand tour of Europe. But if you're now too busy to fly, those rewards may be going to waste. It could even happen if your miles are tied to a specific airline, but you've moved away from their hub. "I got an American Airlines card 10 years ago when I used to fly American a lot, but now I don't anymore," says Gichon, who ultimately swapped for a different card.

In the same boat? Switch to a card with rewards you'll love and use, such as gift cards, merchandise or a deposit to your kid's 529 account. Or go with the reward that 61 percent of American cardholders opt for these days: cash back. That's one reward you probably won't have to worry about using.

See related: Survey: Credit card default rates can top 30 percent, How to check your credit score for free

Published: October 1, 2010


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Credit Card Rate Report

Updated: 07-30-2014

National Average 15.03%
Low Interest 10.37%
Balance Transfer 12.64%
Business 12.80%
Student 13.27%
Cash Back 14.91%
Reward 15.00%
Airline 15.46%
Bad Credit 22.73%
Instant Approval 28.00%

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