Last Updated: April 15, 2021
There are currently more than 1 trillion credit cards in circulation in the United States. They can be categorized by type and issuer, presenting a plethora of available options. So, how to choose a credit card that is right for you?
From your spending habits to your credit score, there is a lot to consider. It’s easy to get overwhelmed. But don’t despair. We offer you a helping hand. Read on to find out what to look for in a credit card!
How to Choose a Credit Card?
Choosing a credit card requires thorough research. There are many different types of credit cards, so you need to know how to narrow down your search. You can do this by doing the following:
Consider your credit score
The first step when choosing a credit card is finding out what your credit score is. You can get a free yearly report from one of the three national credit bureaus — TransUnion, Experian, and Equifax.
The higher your credit score is, the better your chances of getting a credit card at favorable terms are.
Whenever you apply for credit card, the lender will look at your credit report’s information. This includes any existing credit lines, whether you have missed or delayed payments, and how many credit applications you have made in the past six months.
And what’s the best credit card for me if I have a bad credit score?
A secured credit card may be your only option in this case. With this sort of credit card, you will need to put forward a cash deposit, which acts as a security.
If you’ve never had a credit card before, your score may be poor due to a lack of credit history. If this is the case, choosing a credit card can be a little bit frustrating, as your options will be limited. The good news is there are easy to qualify credit cards you can use to build up your score, and after time you can try to get better rates.
Consider your spending habits
Next, you need to consider your spending habits, as this will determine what sort of credit card will be right for you. Ask yourself the following questions:
- Do you travel regularly?
The average foreign transaction fee is 3% of the purchase in US dollars, which can quickly mount up if you travel often. In this case, it makes sense to choose a credit card that doesn’t involve extra charges for using it abroad.
- Do you make work-related purchases?
If so, you should pick a credit card for business purposes. This way, you can exploit features such as free air miles, cashback on certain purchases, and 0% interest for a specific period.
- Do you intend to use your credit card for shopping?
If you’re going to use your credit card to make regular purchases, be it your grocery shopping or buying luxury items, finding a credit card with decent cashback offers makes sense. This way you will get money back on your buys. Depending on the card you choose, this could be all purchases or those made with specific retailers. Some credit card issuers change their eligible cashback partners every few months to ensure variety.
- Are you planning a big purchase?
You may be wondering how to choose a credit card if you intend to make a big purchase, such as a new car. In this case, looking for a credit card with an interest-free period makes sense. From six to 36 months, you can benefit from a zero-interest time that enables you to repay the purchase before any charges are applied.
- Do you want a credit card to pay off existing debt?
If you currently have a credit card that has a balance on it, it can make sense to choose an interest-free balance transfer card. You will have a lot of credit card choices here, with varying interest-free periods. This enables you to transfer your existing balance to the new credit card without accumulating additional debt.
When exploring their options, many people are left wondering “what is the best credit card for me?”.
Now that you have a handle on your own requirements and credit score, you need to understand how to compare the different options available and find the best credit card deals.
The first step is to compare the APR. Standing for Annual Percentage Rate, the APR is the interest that you’re going to pay on your balance, so you must understand this when looking for a good credit card.
Let’s say you have a credit card with an APR of 24%. At this rate ther issuer will calculate your interest over a 12-month period. This results in 2% per month, but as months can differ in length, lenders break down the APR into a daily periodic rate (DPR). So, the APR will be divided by 365, meaning a rate of 0.065% would be applied to your card balance every day.
The lower the APR, the better!
Another important step when it comes to how to choose a credit card is looking at the different fees the provider has in place. Here are some of the most common:
- Late payment fee — If you pay your monthly bill after the due date, what fee will you incur? This is typically a fixed amount, as opposed to a percentage.
- Foreign transaction fee — How much will you be charged for foreign transactions? This is typically between 1% and 3%. But as mentioned above, if you travel abroad regularly, it makes sense to look for a credit card with no foreign transaction fees.
- Balance transfer fee — Credit card issuers typically charge 3% to 5% of each balance transfer. Picking a credit card with an interest-free balance transfer for a set period of time is a viable way to pay off existing debt. Just make sure you consider the APR and whether you can afford to keep the card after the introductory period.
- Annual fee — There are some credit cards that involve an annual fee simply for keeping your account open. In a wide range from $49 to $500, this extra charge usually comes with certain added benefits and rewards.
What credit card should I get if I want good cashback? There are plenty of options out there. Some cards offer cashback on all purchases, but most will only have a limited category or from specified retailers.
You will also want to find out how cashback is applied. How long does it take for you to receive cashback? Will it simply be added to your credit card balance, reducing the amount you owe? Make sure you get all these questions answered before making your final decision.
Should I get a credit card with purchase protection? Yes! Purchase protection is a common benefit that comes with many credit cards, enabling customers to file a claim with the card issuer to receive reimbursement, repair, or replacement for any items that are damaged or stolen.
Don’t simply assume your credit card will come with purchase protection. Make sure this is the case and check the terms and conditions.
Credit card processing network
The four main credit card processing networks are Visa, Mastercard, Discover, and Amex. Understanding the differences between them is critical when choosing the right credit card.
Out of the four, only Discover and American Express actually handle the financing. With the rest, you don’t make payments to the processing network but to your credit card provider.
In other words, Mastercard and Visa don’t issue credit cards. Instead, they work with issuing banks that take on the risk of offering credit to people.
All in all, knowing how to choose a credit card is crucial. There are many options out there, and you need to make sure you select the best for you.
Are you a college student or a businessperson? Do you often travel abroad, or you’re looking to pay off debt? Clearing your financial situation and needs, as well as setting your own requirements, will help guide you toward the best credit card. Meanwhile, your credit score will dictate the options and terms available to you.
To choose a rewards credit card, you need to look at the features available and how they are credited. Some cards provide standard rates for specific categories, i.e. 2% cashback on groceries and gas, and a special rate on others. Some credit cards have rotating categories, meaning they change every quarter.
Looking at the specifics is important if you’re wondering how to compare credit cards and their reward features. You can also find co-branded credit cards, which are suitable for those who have a preferred hotel chain, airline, or retailer. Another option is a travel credit card, which has flexible redemption options. You can earn points, which you can use on hotels and flights around the world.
A good credit card for a college student has a low credit limit and enables you to make interest-free purchases. You can, therefore, buy your college items and pay for them over a long period without having to worry about accumulating fees.
As this is probably your first credit card, you will find that your options are limited. Without a credit history, issuers typically offer high-interest rates and low credit limits. So you need to be careful when choosing credit cards as a college student. And even more importantly, control your spending and keep an eye on debt at all times.
To make a good choice of a business credit card, you should consider its specific purpose. For instance, do you want to make significant business purchases? If so, look for interest-free credit card offers. Do your employees go abroad a lot? If so, a travel business credit card is advisable.
Don’t forget to assess all other fees and any annual charges involved, though. Making a good decision comes down to calculating how much you will pay for the service in every scenario.
When selecting a travel credit card, you need to decide whether to go for a general or co-branded card. The co-branded option is linked with specific merchants, i.e. a particular brand of hotels and/or airlines. This is good if you have a favorite. A general card, on the other hand, offers benefits that aren’t tied to any specific brands.
To choose the right credit card as a first-timer, you need to look for the lowest APR option and any benefits you may receive, such as an interest-free purchase period. Your choice will be limited, so it’s all about finding good credit cards to build credit and gain access to better terms.
A good secured credit card requires a small security deposit. These cards are similar to prepaid accounts, as you have to put a security deposit down, which comes from your own funds. So, this is the main consideration if you’re wondering how to choose a credit card of this type.
You also need to look at any other charges, such as the APR, annual, and late payment fees. Would you be able to reduce these by putting down a bigger deposit? This is something to consider, and it’s often a bit of a balancing act.