There is no one credit card that is the best for every person and every situation. However, by understanding your options and considering your own spending habits and credit situation, you can find a credit card that works well for you. It is important to consider your individual needs and preferences when choosing a credit card.
1. Check your credit
One way to determine what credit card offers you may be eligible for is by checking your credit score. A higher credit score may increase your chances of being approved for credit cards with better perks and benefits. There are several ways to check your credit score, including:
- Requesting a free credit report from one of the major credit bureaus (Experian, Equifax, or TransUnion)
- Using a credit score service or app
- Asking your bank or credit card issuer for your credit score
- Checking your credit score through a secure online account with a credit reporting company.
If you are not happy with your credit score, you can check your credit reports to see what may be causing the issue. You may be able to improve your credit score by making changes to your spending habits or by disputing any errors on your credit reports. Federal law allows you to request a free copy of your credit report from each of the three major credit bureaus (Experian, Equifax, and TransUnion) once every 12 months. You can request your free credit reports at AnnualCreditReport.com, a website that is authorized by the federal government.
2. Identify which type of credit card you need
There are three general types of credit cards:
- Cards that help you improve your credit when it’s limited or damaged.
- Cards that save you money on interest.
- Cards that earn rewards.
The most suitable credit card for you is one that has features that align with your specific needs and preferences. For example, if you do not frequently travel, a credit card with travel rewards and benefits may not be the best fit for you. Instead, you may want to consider a credit card that offers cash back or other types of rewards that align with your spending habits. It is important to choose a credit card that caters to your individual needs and goals.
If you want to build or rebuild credit: Student or secured credit card
Student credit cards and secured credit cards are often easier to qualify for, particularly for individuals who are new to credit or have a limited credit history. Student credit cards are specifically designed for college students and may have more lenient approval requirements. Secured credit cards generally require a security deposit, which acts as collateral in case the cardholder is unable to make their payments. The deposit is returned to the cardholder when the account is closed in good standing or upgraded to an unsecured credit card.
If you want to save on interest: Low-interest, 0% APR or balance transfer card
If you plan to use your credit card for emergencies or if you have an irregular income and may need to carry a balance from time to time, a credit card with an introductory 0% APR and ongoing low interest rate could be a good option for you. A balance transfer offer may also be helpful if you want to pay off a high-interest debt without accruing additional interest. However, it may be more difficult to find credit cards with these types of offers if you have average or poor credit. It is important to consider your individual financial situation and needs when choosing a credit card.
If you want to earn rewards: Rewards, travel or cash back
If you are able to pay off your credit card balance in full each month and do not incur interest charges, a rewards credit card may be a good fit for you. These types of credit cards typically offer higher sign-up bonuses and allow you to earn points, miles, or cash back on your purchases. However, they may also have higher annual percentage rates (APRs). It is important to carefully consider the terms and conditions of a rewards credit card and ensure that it aligns with your financial habits and goals
3. Narrow your choices by asking the right questions
For student and secured credit cards:
When choosing a credit card, it is important to consider the following factors:
- Will this card help me build my credit? Look for a card that reports your credit card payments to the three major credit bureaus. Some secured credit cards do not report to the credit bureaus, so it is important to check before applying.
- What are the costs associated with opening an account, including the annual fee? Rewards credit cards may have an annual fee, but it is generally not worth it unless the rewards are significantly higher. If you have poor credit, a secured credit card with a low security deposit may be a good option. Keep in mind that the amount of your security deposit may affect your credit limit.
- Is it possible to upgrade to a better credit card in the future? Choose a credit card that allows you to build your credit and upgrade to a card with more competitive terms. This can help you keep your credit card account open longer, which can increase your average age of accounts and improve your credit score.
For low-interest, 0% APR or balance transfer cards:
- How long is the 0% APR period and what is the ongoing interest APR? Look for a credit card that offers a long 0% APR period, which will give you more time to pay off your debt without accruing interest. If you plan to carry a balance for an extended period of time, consider a credit card with a low ongoing APR.
- What is the card’s balance transfer policy? If you are considering a balance transfer, it is important to research the card’s balance transfer fees and find out what types of debt you can transfer and if there is a limit to how much you can move over. Keep in mind that the balance transfer APR may be different from the purchase APR.
- Does the card offer rewards? If you are only interested in a 0% APR period for a few months, you may be able to find a credit card that also offers ongoing rewards. It is important to carefully consider the rewards offered by a credit card and ensure that they align with your spending habits and goals.
For rewards, travel or cash-back cards:
- How do you typically spend your money? Look for a credit card that offers the highest rewards for the categories you spend the most on. If you are a high spender, you may want to consider a credit card with an annual fee if the rewards you earn will offset the cost. If you plan to use the card abroad, look for a credit card with no foreign transaction fees.
- How complex is the credit card program? If you do not want to deal with limited award seat availability, spending caps, rotating bonus rewards, and loyalty tiers, consider a credit card with flat-rate cash-back rewards.
- How quickly will you earn rewards and how much are they worth? You can research the answers to these questions by reading reviews or valuations of credit card rewards programs.
4. Apply for the card that offers you the highest overall value
After comparing your options and narrowing down your choices, you may find that you are still unsure which credit card is the best fit for you. If you have identified a clear winner after comparing the features and benefits of each credit card, you should go with that one. If you are still unable to decide between two or three similar credit cards, it may be helpful to use a tiebreaker round to help you make a decision. This may involve considering factors such as the issuer’s customer service reputation, the card’s fees and charges, or any additional perks or benefits that one card may offer over the others.
Look closely for differences. All other values being equal, here are some factors that might set a card apart:
For student and secured cards:
- Credit limit automatically increases. Certain cards let you increase your limit after a few consecutive on-time payments.
- Interest paid on your deposit. Some secured cards place your security deposit in an interest-earning CD. This way, you can earn a small amount of money on it.
For low-interest, 0% APR or balance transfer cards:
- Debt payoff planner. Some issuers let you create your own debt payoff plan on an online portal, a valuable tool if you’re overwhelmed with debt.
- No late fees or penalty APR. Certain cards waive these charges. If you fall behind on payments, this could come in handy.
For rewards, travel or cash-back cards:
- Lower required spending. The less you need to spend to qualify for a sign-up bonus, the better.
- No expiration date on rewards. On some cards, you can use your rewards as long as you keep the card open.
When you are ready to apply for a credit card, it is important to remember that you can include all sources of income that you have reasonable access to on the application, not just your personal income. This can be especially helpful for students who may have income from grants, scholarships, or allowances from their parents. If you are married or have a partner, you may also want to consider including their income on the application. By including all sources of income, you may be able to increase your chances of being approved for a credit card or qualify for a card with a higher credit limit.
So you’ve found the best credit card. What’s next?
After choosing the best credit card for your needs and financial situation, it is important to use your card responsibly in order to get the most value from it. Here are a few tips to help you get the most from your credit card:
If you are trying to establish credit, make sure to pay your bill in full each month and avoid using too much of your available credit. This will help you build a positive credit history and improve your credit score.
If you have a credit card with a 0% APR promotion, make sure to stick to your debt repayment plan to avoid accruing interest charges.