Which credit card is better for you? | Consumer credit | Financial Literacy | Khan Academy

And now we are going to play the game: which credit card is better for you? The reason why I'm saying "for you" is because, in many cases, one credit card could be better than another person depending on how they plan on using it. So pause this video and look at the different pieces of these credit cards or the information about them, and decide which one is better for you.

All right, now let's work through this together. So, we'll start right over here: the annual percentage rate, the APR for purchases. So, credit card A has a 12.99 APR, and credit card B, if you just eyeball it, you might be drawn to the 6.99; you say, "Hey, that looks pretty good." But you have to pay attention here. It's this variable prime rate plus 6.99. So if they just gave you this information, you would have to figure out what is the variable prime rate right now.

I just looked it up at the time that I'm making this video; it's a little bit over six percent. So if you add the variable prime rate to the 6.99, you actually have a higher interest rate. It's going to be 13 point something percent versus what you have over here. Now the other difference is not only is it higher right now; this is variable while the one on credit card B is variable, while credit card A is fixed.

You have to think about what might be happening to interest rates going forward. Well, if interest rates are going up, then this credit card B is only going to get worse and worse and worse. So I would, especially at a time when interest rates are moving upward, think about credit card A as maybe having the slightly better APR here, although they are close.

Now let's think about the annual fee. Well, zero dollars definitely feels a lot better than fifteen dollars. So just looking at that alone, I like credit card A as well; I like that zero dollars. Now transaction fees: they have a cash advance fee, a foreign transaction fee, and when you see it here, it looks like credit card A is doing better on the cash advance fee—three to five percent versus five percent. So I like lower fees.

But when you look at the foreign transaction fee, it looks like credit card B is better; it has no foreign transaction fee. So this is a situation where if I'm doing a lot of cash advances, I'm essentially going to directly borrow money from the credit card company. I'm liking credit card A, especially because of the first two rows.

But let's say I plan on traveling a lot in foreign countries. I'm going to be using this credit card a lot in those foreign countries. Well, then I might like credit card B because a dollar fifty plus three percent of each transaction could be a lot of money. It could be a lot more than fifteen dollars per year, and it could be a lot more than whatever the interest rate is between B and A. So if I'm traveling a lot, I definitely like credit card B.

Now, the grace periods are the same. Credit card B's grace period is a little bit longer, which would make it a little bit better, but they're close. So I would call that a little bit of a toss-up, obviously giving a little bit of a nod to credit card B.

And then last but not least: rewards, which is typical in a lot of credit cards. Credit card A gives you no rewards, while credit card B gives you one point per dollar spent on all gas purchases. So there are a few things here you have to think: what does a point give you?

You could look into what points can earn for you, and this might be a situation if you're doing a lot of driving, if you're going to spend a lot of money on gasoline that maybe this might be worth the fifteen annual fee, and depending on what's going on with the variable prime rate, maybe a slightly higher interest rate. That becomes doubly true for you if you're going to travel a lot.

On the other hand, if you're not going to drive a lot, these points don't mean a lot to you, and if you're not going to travel a lot, then credit card A, I think, is looking a little bit better.