Choosing the Right Credit Card, ECON 107b Project 1 Activity – Study Notes
Difficulty: Beginner | Prerequisites: Basic understanding of interest and borrowing.
Credit cards are one of the first financial products most people encounter, and choosing the wrong one can cost hundreds in unnecessary fees and interest. This activity sits inside a broader personal finance and microeconomics unit that covers borrowing, lending, and consumer decision-making. You should already be comfortable with the idea that money has a time value (a pound today is worth more than a pound next year) and that lenders charge interest as their price for letting you use their money. The core skill here is reading the fine print on a credit card offer and comparing cards on the dimensions that matter: APR, fees, intro periods, rewards, and suitability for your credit profile.
When comparing credit card offers, the numbers that matter most are the regular APR, the annual fee, the length of any introductory 0% period, and whether the card charges processing fees upfront. A card with no annual fee, a low regular APR, and a generous intro period (like Capital One Platinum Prestige at 10.90% regular APR) will almost always beat a card that charges $105 a year plus a $95 processing fee just to open the account (like First Premier Bank Platinum Visa).
APR (Annual Percentage Rate)
The yearly interest rate a lender charges on any balance you carry past the payment due date. It includes interest but not other fees.
Think of it as the "price of borrowing" expressed as a percentage per year.
Introductory APR (Intro APR)
A temporarily reduced interest rate (often 0%) offered for a set period after you open the account, to attract new customers.
In simple terms, this means you pay no interest on purchases or balance transfers during the intro window, but the full rate kicks in afterwards.
Variable APR
An interest rate that can change over time because it is tied to a benchmark rate (usually the U.S. prime rate). When the benchmark moves, your APR moves with it.
Think of it as a floating price tag on your borrowing that the bank can adjust.
Annual fee
A yearly charge the card issuer bills you just for having the account open, regardless of whether you use the card.
In simple terms, this means you pay to keep the card even if you never swipe it.
Balance transfer
Moving an existing debt from one credit card to another, usually to take advantage of a lower interest rate on the new card.
Think of it as refinancing your credit card debt onto a cheaper card.
Processing fee
An upfront, one-time charge some card issuers require before they activate your account. Common on cards marketed to people with poor credit.
In simple terms, this means you pay to open the door before you can even use the card.
Rewards programme (miles, points, cashback)
A system where the card issuer gives you something back (airline miles, hotel points, or cash) for every dollar you spend on the card.
Think of it as a small rebate the issuer offers to keep you spending on their card instead of a competitor's.
Subprime credit card
A card designed for borrowers with low or damaged credit scores. These cards typically carry higher fees and interest rates because the issuer sees the borrower as higher risk.
In simple terms, this means the worse your credit history, the more expensive it is to borrow.
Feature | Card 1: Miles by Discover | Card 2: Citi Hilton HHonors Visa | Card 3: First Premier Platinum Visa | Card 4: Capital One Platinum Prestige |
|---|---|---|---|---|
Intro APR | 0% for 6 months | None | None | 0% (extended period) |
Regular APR | 20.99% (variable) | 14.24% or 16.24% (variable) | 14.24% or 16.24% (variable) | 10.90% |
Annual fee | $0 | $0 | $105 | $0 |
Processing fee | None | None | $95 upfront | None |
Balance transfers | Yes | No | No | Yes (0% intro) |
Rewards | 1 mile per $1 spent; 1,000 bonus miles/month in year one | Hilton points: 6x at Hilton hotels, 3x groceries/gas, 2x everything else | None | None |
Best for | Travel spenders who want flexible rewards and a short 0% window | Frequent Hilton guests | Rebuilding credit (but at a steep cost) | Everyday use with the lowest long-term interest rate |
Card 1: Miles by Discover
0% intro APR for six months on purchases and balance transfers, then 20.99% variable.
Earns one mile per dollar spent, redeemable for travel credits, merchandise, gift cards, or cash.
Up to $120 in travel rewards during the first year (1,000 bonus miles each month you make a purchase).
No annual fee, no rewards redemption fee, no additional card fee.
Includes secondary collision damage insurance on rental cars.
No blackout dates on travel redemptions.
Card 2: Citi Bank Hilton HHonors Visa Signature
No intro APR period at all.
Regular APR of 14.24% or 16.24%, variable.
40,000 Hilton bonus points after spending $1,000 in the first four months.
Tiered points earning: 6 points per $1 at Hilton hotels, 3 points per $1 at supermarkets, drugstores, and petrol stations, 2 points per $1 on everything else.
No annual fee.
No balance transfer option.
Only worthwhile if you stay at Hilton hotels regularly; otherwise, the points have limited value.
Card 3: First Premier Bank Platinum Visa
No intro APR period.
Regular APR of 14.24% or 16.24%, variable.
$105 annual fee, plus a $95 processing fee just to open the account. That is $200 in costs before you charge a single item.
No rewards programme whatsoever.
Marketed as a credit-building card: it reports to major consumer reporting agencies, which can help rebuild a damaged credit history over time.
Requires a checking account to qualify.
This card exists for people who cannot get approved elsewhere. For anyone with fair-to-good credit, it is a poor deal.
Card 4: Capital One Platinum Prestige
0% intro APR on both purchases and balance transfers for an extended period.
Regular APR of just 10.90%, the lowest of all four cards by a wide margin.
No annual fee.
No rewards programme, but the low ongoing APR more than compensates if you ever carry a balance.
Includes 24-hour travel assistance (replacement card and cash advance) and 24-hour roadside assistance.
Customisable card image.
The two strongest offers are Card 1 (Miles by Discover) and Card 4 (Capital One Platinum Prestige).
Card 1 is the better choice if you pay your balance in full each month and want to earn rewards on your spending. The 0% intro period gives a six-month cushion, and the miles programme returns value on every purchase.
Card 4 is the better choice if you expect to carry a balance from month to month, because 10.90% is roughly half the cost of Discover's 20.99%. The extended 0% intro period on both purchases and balance transfers adds further value.
Card 2 is reasonable only for dedicated Hilton guests.
Card 3 is objectively the worst deal: the highest total cost (annual fee plus processing fee) with the fewest benefits. It serves a narrow purpose (credit rebuilding) at a steep price.
Monthly interest charge on a carried balance:
Monthly interest = (APR / 12) x Outstanding balance
For example, if you carry a $1,000 balance on a card with a 20.99% APR:
Monthly interest = (0.2099 / 12) x $1,000 = $17.49
On the same balance at Capital One's 10.90% APR:
Monthly interest = (0.1090 / 12) x $1,000 = $9.08
That difference of $8.41 per month, or roughly $101 per year, is the real cost of choosing the higher-APR card when you carry a balance.
First-year cost of ownership (a useful comparison tool):
First-year cost = Annual fee + Processing fee + (Monthly interest x months carrying a balance) - Value of rewards earned
For Card 3 (First Premier), even with zero balance carried, the first-year cost starts at $200 ($105 annual fee + $95 processing fee). For Cards 1, 2, and 4, it starts at $0.
When you receive a credit card offer in the post or online, the first three numbers to find are the regular APR, the annual fee, and any upfront processing fee. Those three figures tell you what the card costs before you earn a single point or mile.
The intro APR matters only if you have a specific, time-limited plan, such as transferring an existing balance and paying it off within the 0% window. If you miss the window, the regular APR applies to whatever remains, and it is often higher than what you started with on the old card.
Students often think a lower regular APR always means a better card. It does not. If you pay your balance in full every month, you never pay interest, so the APR is irrelevant and a strong rewards programme becomes the deciding factor instead.
Students often confuse the intro APR with the regular APR. The 0% rate is temporary. Once the intro period ends, the standard variable rate applies to any remaining balance.
Students often assume that a card marketed for "credit building" (like First Premier) is a good deal for everyone. It is not. Those cards charge high fees precisely because they accept higher-risk borrowers. If you qualify for a mainstream card, the credit-builder card is strictly worse.
Students sometimes overlook annual fees when comparing rewards. A card with generous rewards but a $100 annual fee needs to return more than $100 in rewards value per year just to break even.
Be ready to compare two or more credit card offers side by side and justify which is the better choice for a given consumer profile. The activity tests whether you can weigh APR, fees, and rewards against one another.
Know the difference between a fixed and a variable APR, and understand that "variable" means the rate can increase.
Expect questions about the true cost of a credit card, including hidden costs such as processing fees and annual fees that are easy to overlook.
Understand why a 0% intro APR is a marketing tool, not a permanent feature: exams may present a scenario where a student must calculate interest after the intro period expires.
True or false: A 0% intro APR means you will never pay interest on that card. (False. The 0% rate is temporary.)
Fill in the blank: The First Premier Platinum Visa charges a $____ annual fee and a $____ processing fee. (105; 95)
True or false: Card 4 (Capital One Platinum Prestige) has the lowest regular APR of the four offers. (True. 10.90% versus 14.24%+ or 20.99%.)
Fill in the blank: APR stands for ________ ________ ________. (Annual Percentage Rate)
True or false: A rewards programme is always more valuable than a lower APR. (False. It depends on whether you carry a balance.)
Q: You are choosing between two credit cards. Card A has no annual fee, no rewards, and a regular APR of 11%. Card B has no annual fee, earns 2% cashback, and a regular APR of 22%. You expect to carry an average balance of $2,000. Which card is the better choice, and why?
A: Card A. The interest saved on the lower APR far outweighs the cashback. At 22%, you would pay roughly $440 per year in interest. At 11%, roughly $220. The $220 saved dwarfs any realistic cashback earnings. (2% cashback on $2,000 of new spending per month would be $480 per year, but the interest cost on the carried balance still makes Card A cheaper overall unless spending volume is very high.)
Q: Why is the First Premier Bank Platinum Visa considered the worst of the four offers for most consumers?
A: It charges both a $105 annual fee and a $95 processing fee ($200 in year one), offers no rewards, no intro APR, and no balance transfer option. The only benefit is credit reporting to help rebuild a damaged score, which most of the other cards also do.
Q: Explain one scenario in which Card 2 (Citi Hilton HHonors) would be a better choice than Card 1 (Miles by Discover).
A: A consumer who travels frequently and stays at Hilton hotels would earn 6 points per dollar at Hilton properties. If that person spends several thousand dollars per year on Hilton stays, the accelerated earning rate on hotel spend would generate more value than the flat 1 mile per dollar offered by Discover.
Q: What happens to your interest charges when a 0% intro APR period expires and you still have a balance?
A: The card's regular APR applies to the remaining balance from that point forward. On Card 1 (Discover), that means 20.99%. On Card 4 (Capital One), 10.90%. Any balance not paid off during the intro window begins accruing interest at the full rate.
This material connects to the rent-vs-buy decision covered in Section 2 of the same project, because both involve evaluating the cost of borrowing (interest rates, loan terms) against your personal financial situation. The credit card comparison is a smaller-scale version of the same reasoning you apply when deciding whether to take on a mortgage.
It also ties into the payday loans discussion in Section 3. Payday lenders and subprime credit cards (like First Premier) both target consumers with limited options and charge them more for access to credit, which raises questions about consumer protection and market fairness that appear throughout introductory microeconomics.
APR, annual percentage rate, intro APR, introductory rate, teaser rate, variable interest rate, fixed rate, annual fee, processing fee, balance transfer, credit card comparison, rewards card, miles card, cashback card, points programme, Discover Miles, Hilton HHonors, Capital One Platinum, First Premier, subprime credit card, credit building card, consumer credit, personal finance, microeconomics, cost of borrowing, credit score, credit history, ECON 107b