- Credit cards can be a great way to build your credit score and history when used properly, and even protect you from fraud.
- Falling behind on payments can result in compound interest and quickly bury you in debt.
- There are numerous types of credit cards, each suited for a different type of user, but all of them require you pay in a timely manner.
When it comes to credit cards, you’ve got a near-limitless selection. There are cards with cashback rewards, free mileage, gas discounts, and even cards specific to popular retail outlets. Options are always nice, but this also makes the selection process more time-consuming.
Fortunately, there are a number of things you can think about ahead of time to make your search shorter and more effective. In no time, you’ll know how to choose a credit card that’s right for you.
How to Choose a Credit Card That’s Right for You
You’re faced with a ton of rewards and credit card types available. While studies show more than half of people surveyed prefer cashback rewards over miles and other types of rewards, that doesn’t necessarily mean a cashback rewards card is the right card for you.
To determine the right credit card, you need to think about your shopping habits, your credit history, and what your overall preferences are. Is there a flight you’ve been unable to afford? Do you regularly find yourself spending a ton on gas? Is there a store you frequent a lot? These are the kinds of things you’ll want to think about.
But first, keep in mind the following when you’re considering any credit card:
- APR (Annual Percentage Rate): Even the greatest rewards make a card with a high APR a tough pill to swallow. If you’re confident you can pay a card off without allowing interest to accrue, you might be safe with a high APR. If you’re not sure you can pay quickly enough to avoid interest, don’t let the rewards of a high APR card sway you.
- Transaction fees: Some card will have transaction fees that apply to some or all purchases. If you’re planning on using your card often, these kinds of fees can add up quickly. Make sure to note any kind of fees in the fine print before signing anything.
- Annual fees: There are credit cards, especially those aimed at high earners, that will have annual fees. Some of these cards will have attractive rewards tied to them, like a higher amount of cashback or more travel miles than other cards. These perks may or may not make the fees worthwhile. Make sure you’re aware of any annual fees that might be part of a card agreement before moving forward.
- Card issuer‘s reputation: Not all creditors are created equally. Make sure you look around online and see not only which card offers great rewards, but has a great reputation to back it up. If you see numerous complaints about a company having odd charges or terrible customer service, take this into account before you say “yes” to a creditor.
Now that you’re armed with the basics, it’s time to look at the different types of credit users. Think carefully about each of the personalities below and decide which one describes you. There’s no single best card, but, with careful planning and consideration, you can know how to choose a credit card that’s best for you.
The Credit Newbie
If you’re new to credit and haven’t held any kind of credit card before, you’ll want to consider a card that’s aimed at beginners. These are offers like a prepaid credit card or secured credit card.
A prepaid credit card is almost like a gift card, in that you pre-load money onto the card before using it. This preloaded amount acts as your limit, as there’s no additional money on the card. Responsibly using one of these cards can still be a solid way to build your credit rate.
A secured credit card requires a deposit, which generally determines your credit limit as well. So, if you put down $500, your limit will be $500. Unlike a prepaid card though, a secured card still uses an actual line of credit to fund your purchases. This means you need to make timely payments to avoid any fees or interest. Despite the secured aspect of these cards, they don’t always have low interest rates like you might expect. Some will have high interest rates, so be aware of this if you decide to go with one.
You can also consider being added as an authorized user on someone else’s credit card. As an authorized user, you can use this person’s credit card as if it were your own. That being said, any poor payment habits or overspending can hurt that person’s credit history and impact their score and interest rates. Because of this, make sure you’re only added as a user to the card of someone who trusts you.
The Responsible Spender Looking for More
If you have a history of managing your finances responsibly — meaning you keep your balance pretty close to zero and never have late payments — you might want to consider a rewards credit card.
Reward cards come in all shapes and sizes. Well, they’re all one shape, but they can offer a host of different rewards. Think about your lifestyle and habits and what you want out of your card.
For example, if you’re a frequent traveler or have been wanting to take a lengthy trip, look for a travel rewards card that offers airline miles, hotel points, or no transaction fees for travel. Or, maybe you like to shop at a certain retail chain. See if that retailer offers a credit card unique to their stores that offers a money back or percentage off program and “insider” sales and coupons that can save you money if you prefer their merchandise.
Many credit cards have rewards programs that offer cashback as well, which can be great for general savings and getting the most out of your dollar. Shop around and look at the many credit card issuers available before settling on one, as there are numerous rewards programs out there and each has its pros and cons. If you can’t make up your mind, general cashback cards have a lot of utility value and can be especially useful if you save your cashback rewards for holiday shopping.
The Socially Conscious Consumer
Do you frequently find yourself fighting for causes you believe in? Look for a card issuer that’s tied to a social cause. While not as common as typical rewards cards, there are cards that will donate portions of your spending to charities. If nothing else, you can look for credit card companies that have a history of giving back and being environmentally and socially responsible.
If you can’t find a socially conscious creditor that suits your needs or has an interest rate that’s fair, think about opening an account with a credit union instead. Credit unions are typically smaller and more family-oriented, and sometimes even give back to their communities in various ways. This is personal finance after all, so make it truly yours!
The One Who’s Had Credit Troubles
Have you struggled with high credit card balances in the past? If you’ve been stuck in a revolving cycle of debt or have a history of allowing interest to build and build, avoid opening any new credit cards until you’re in the clear. Your first order of business should be getting your spending habits in check. Next, think about starting fresh with a secured card or prepaid card, as these will help you rebuild your credit history without the risk of a traditional card.
Getting Out of Credit Card Debt
If you’re currently struggling with debt, there are a number of tools at your disposal that can help you clear your debt and get on the track to a healthy credit history. A great way to accomplish this is through debt consolidation. This is the process of combining your debt across all of your accounts and then clearing it with a single payment. This payment is generally made through a debt consolidation loan or personal loan, including through peer-to-peer lending.
These kinds of loans will generally have a lower interest rate than a credit card with a longer term, which equates to smaller monthly payments. This allows you to clear the aggressive interest that comes with credit card debt and reasonably pay off your debt via the loan.
You can also look into doing a balance transfer to a card with an introductory rate of 0% interest. This route can be a little more risky than the debt consolidation path, as you have to pay your entire balance off before the grace period ends, otherwise you’re going to start accruing interest on the total sum of your debt. This can result in even more debt than you started with if you aren’t careful.
If you’re faced with a large amount of debt that you’d like to pay down and need some help coming up with a plan, seek the advice of a credit counselor for what’s best for you.
Determining How Many Cards to Have
Now that you know how to choose a credit card, you’re probably wondering how many cards you should have in the first place. When it comes to determining how many cards to have, there’s no single right answer.
To determine how many cards you should have, you need to examine a few things:
- Your credit history
- What you want to use the card(s) for
- Your general spending habits
If you feel your credit history is in a good place, you may be ready for another card. More importantly, if you feel you have a need for another card — you want rewards of a different type, etc. — and you can keep your spending in check, then you can think about getting a second or third card.
For more information on this topic, read our in-depth guide on how many credit cards you should have.
Increasing Your Credit Limit
To increase your credit limit, there are a few things you can do:
- Ask for a limit increase: Plain and simple, you can ask for a limit increase from your card issuer. They’re free to deny you, but if you’ve used your card responsibly, they may agree.
- Wait for automatic limit raises: On average, card limits will go up every six to 12 months if the card is used responsibly. If you don’t want to call and ask for a limit increase, simply be responsible with your card and wait it out.
- Most importantly, use your card responsibly: Above all, be responsible with your credit cards and credit in general. Using your credit properly will most likely lead to your credit score increasing, which often results in your card limits going up as well.
For an even more detailed look at this topic, be sure to read our guide on increasing your credit card limit.
How to Choose a Credit Card: Be Confident and Well-Informed
With this knowledge, there’s no more wondering how to choose a credit card.
No matter what, remember that if a credit card offer looks too good to be true, it probably is. Always be mindful of the fine print and ask tons of questions if you’re speaking with a representative.
Also, always be mindful of your spending habits. The best credit card in the world is only the “best” when it’s under the control of the person swiping it. Responsible spending is the foundation of any strong financial future, so make sure your spending habits are in check before you move forward with any new card. Rewards can be tempting, but at the end of the day, the best credit card is one you can pay off.