“CONGRATULATIONS! You’ve just been pre-approved…”

You’ve probably received many of these credit card offers in the mail. That being said, how do you know which ones are good and which are not?

How do you choose the right one out of the many credit card offers that come in?

For starters, just because it says you’re pre-approved or pre-qualified doesn’t mean you will get one. Let me tell you a secret – everyone who receives credit card offers were all “pre-approved,” same as you.

There’s nothing really special about it. It’s simply a marketing ploy finance and banking companies use to get consumers to apply for one.

When you look at the options, ask yourself this questions first.

1. Will you be paying your bills each month or will you carry a balance from month to month?

If you’re planning on paying off the balance of your purchases every month then you may want to look at a charge card instead. This requires you to pay the full balance incurred every month at a specific due date less you incur late penalties, fees, and usage restrictions.

On the other hand, credit cards are more of a revolving line of credit that allows for balances to be carried forward without you having to pay the full amount. You just need to take care of the minimum amount required.

If you opt for this then look for  offers that have no annual fees and have long grace periods.

However, check on their Annual Percentage Rate or APR. Usually, credit card offers with no annual fees charge the highest APRs.

If, on the other hand, you plan to carry balances forward then it is best if you look for credit cards that have low APRs.

But if looks too good to be true it probably is. These low APRs are often “teasers” which means that they are introductory rates that are good for 1 to 6 months after which you get charged a higher rate.

This is especially true for balance transfer credit card offers. You’re not really going to save between what you’re paying in your old card and the one you’re transferring to if you consider the fact that most balance transfers have a fee involved which is usually a percentage of the amount you’re transferring.

Another question you may want to ask is:

2. Will you do cash advances and do you want rewards?

If you want cash advances then you want credit card offers that carries a lower APR and lower fees on cash advances.

Most finance companies have multiple APRs depending on the type of transaction involved. Thus they have one APR for purchases, another for cash advances, and yet another for balance transfers.

Those for cash advances tend to be higher overall and get paid off last as well. This means that your monthly payments go to the transactions that carry the lower interest rates first.

As for cards that have reward programs, they usually carry higher APRs. Not only that, they also have complex rules and restrictions on how you can use the reward points you’ve earned. And many even have expiration dates.

You also need to consider if where you shop often is part of the rewards program and whether what you get outweighs the cost.

And opening and closing accounts just to take advantage of interest rate differentials or rewards is not a good thing as it has a detrimental effect on your financial history.

There are many different types of credit card offers to choose from. Understanding your needs will help you make sure you’re applying for the right one.