These days it seems that credit cards are the prevailing method of making purchases. To those who are new to credit, choosing a credit card might seem like a simple task, especially when you are inundated with credit card offers. However, you shouldn’t apply for just any credit card offer you receive in the mail.

When you are choosing a credit card, it is best to shop around to choose the best card for you. Since different credit cards have different features and benefits, doing some exploring will help you make a good decision.

The primary factor that comes into play when you are choosing a credit card is how you plan to use the card. There are a few basic ways that people choose to use their credit cards.

To make purchases and pay the balance in full each month. The best choice of credit card for someone that pays their balance each month is one that does not have an annual fee and has a longer grace period. The grace period is the number of days that you have to pay your balance without receiving a finance charge.

1. To make purchases and carry the balance from one month to the next. For consumers that use cards in this manner, the best choice is a card that has a low interest rate. A lower interest rate means you pay a lower cost for carrying a credit card balance from one month to the next.
2. For cash advances, whether you will repay each month or carry the balance. The best credit card for cash advances is one that has a low interest rate and low fees for cash advances.

No matter which of these methods applies to your credit card use, most credit card companies have several different kinds of credit cards that you can choose from.

A secured credit card requires you to first make a deposit into an account. You then receive a credit card that has a credit limit in the amount of your deposit. A secured card is best for people with no credit or bad credit.

Regular credit cards do not require you to make a security deposit and have a relatively low limit as compared to premium cards.

Gold and platinum credit cards are considered premium credit cards. These cards have a higher limit and more features offered for using the card. Such features include rebates for purchases, roadside assistance, and travel insurance.

Part of your decision for a credit card will be based on the kind of credit card for which you qualify. For example, if you have bad credit, you may have no choice other than a secured credit card.

Once you know the kind of credit card you can receive, then you should make a decision based on the interest rate, credit limit, and features offered.

Your credit report contains a significant bit of information about your financial history as it pertains to credit. The information on your credit report is used to determine whether or not a company should extend credit to you. Several pieces of information are included in your credit report.

Personal identifying information such as your name, address, telephone number, social security number, and employer is included on your credit report. Your credit report will contain current and previous addresses and employers. When you receive a copy of your own credit report, your spouse's name may be included.

Your credit history makes up the bulk of your credit report. This includes all accounts you have with banks, finance companies, mortgage companies, retail stores and any other company that has granted credit to you. Information about each of these accounts is included: when the account was opened, the type of account it is, the credit limit or amount of loan, the current balance, and your monthly payment amount. Late payments and missed payments appear in this section of your credit report.

Public records that pertain to your credit worthiness are listed on your credit report: tax liens, court judgments, and bankruptcies are in this section.

Inquiries made to your credit report are listed. Whenever a company requests a copy of your credit report, an inquiry is added. Some companies receive your name and address to offer you credit or some other product; for example, the companies that send pre-approved credit card offers. These companies are included in the inquiry section of your credit report.

Should you find any inaccurate information on your credit report, you can dispute it. These dispute statements are included on your report.

The following pieces of information are not included on your credit report: race, health, criminal records, driving records, income, bank account balances, religion, and driving records.

Depending on who is requesting your credit report, different versions are given. When you request your own credit report, your version, known as the consumer version, includes all the above-mentioned information and a full listing of inquiries made for your credit report. A business version of the credit report exists that includes only inquiries that have been made with a permissible purpose. Usually permissible purpose defines a business that you initiated business with, rather than unsolicited pre-approval companies. Only inquiries that are made in response to you requesting credit from a company count in calculating your credit score.

For information on how your credit score is calculated, go to the article What Makes Up A Credit Score.

Your credit score is a numerical indication of your credit worthiness.  It is the primary factor that creditors and lenders use to decide whether or not they should extend credit to you.  You may also hear the credit score called the FICO score.  This name comes from the Fair Isaac Corporation, the company who is credited with developing the system that comes up with the credit score. If you have ever applied for a credit card, personal loan or insurance, there is a file on you and your credit history and financial history. This report contains very detailed information about you - where you live, where you have lived in the past, how you pay your bills, whether you've filed for bankruptcy, and whether you've been involved in a lawsuit or been arrested for any reason.

Having a good credit score is essential in getting credit and better credit terms. It will not only be easier for you to obtain credit, but you will be offered lower interest rates. Lower interest rates mean lower monthly payments and lower cost overall of the loan. Therefore, having a good credit score is desirable if you wish to finance a purchase of any kind.

To calculate your credit score, a formula is used.  This formula takes into account all the information on your credit report then comes up with the numerical summary known as your credit score. The Fair Credit Reporting Act (FCRA) promotes the accuracy, fairness and privacy of the information in the files of the credit agencies. You have a right to know what information is contained in the report, but you have to request the information. Not all the information will be correct and it's your responsibility to correct any errors. You can obtain a free credit report every 12 months, but you must request it.

The credit scoring system was developed as a way for creditors to assess whether or not you are a good credit risk. It allows them to determine whether or not to lend you money, and under what terms. Your information is compared to other consumers with similar profiles to predict how credit-worthy you are; in other words, how likely you are to repay the loan according to the terms of the lender.

Credit scores can range anywhere from 300 to 850.  Most people have a credit score falling between 600 and 800.  Higher scores are deemed better by creditors and lenders.

There are five key factors about your credit history that make up your credit score.  These factors include the way you pay your bills, the way you use your credit, the age of your credit history, the number of times you ask for credit, and the types of credit you have.

Different types of lenders and creditors look at your credit score differently to determine whether or not you are credit worthy.  If you are applying for a credit card, the credit card company will pay closer attention to the part of your credit history that pertains to credit cards.  An automobile lender will look at your total amount of debt versus the total amount of income you have as well as the amount of your down payment.  Should you apply for a mortgage, your total credit score will be used to determine whether or not you qualify for the loan and the amount of your interest rate.

You can find out your credit score by contacting any of the three credit bureaus: Equifax, TransUnion, or Experian.  The cost of the credit score will vary among the bureaus.  If you plan to apply for a credit card or loan, it is useful to obtain your credit score from each of the credit bureaus so you are aware of your standing before making the application for credit. If there are errors on your report, you should take the time to resolve them. This may improve your credit score, making it easier to obtain credit and better terms for that credit.

Related Articles:

• What makes up a credit score
• Introduction to Credit Reports
• Choosing a credit card