Did you know that most Americans now enjoy a credit score that’s greater than 700? Or that the number of individuals with a perfect credit score of 850 has skyrocketed over the past decade? How are American consumers making such significant strides when it comes to their FICO credit scores? By doing their research and knowing how to choose a credit card for their lifestyle!
Want to join them? Then it’s time you figure out how to choose the right credit card for you. Credit cards are as diverse as the people who use them. In other words, no one card suits everyone. As a result, when choosing a credit card, you’ll need to factor in your financial history, future goals, and spending habits before making a final decision.
4 Tips for Choosing a Credit Card
Let’s take a look at the process of choosing a credit card, so you can come out knowing what type of credit card is best for you.
Start with Your Credit Score
Your credit score determines which credit cards you’re eligible to get, so it’s a good place to start. There are several ways to get your credit score, including:
- Using NerdWallet’s free access to credit scores
- Purchasing a copy of your credit report from one of the three major credit bureaus (e.g., Equifax, Transunion, Experian)
- Heading to Annual Credit Report for your free yearly report
- Checking with a credit card account you already have (if applicable) to see if they offer free FICO scores
What happens if you don’t like the number you see? Grab the copy of your credit report and look for what’s bringing your score down. Do you see errors on your report? If so, dispute them. Are there ways to improve your spending habits to build better credit over time? Make some changes.
Why is building a better credit score important to choosing a credit card? A good credit score raises your odds of getting a credit card loaded with perks!
Identify Your Financial Goals
Once you’ve ascertained your credit score and have a better sense of the types of credit cards you’re eligible to get, identify your short- and long-term financial goals. This process will help figure out how to choose the right credit card for you and your goals.
Know the Types of Credit Cards Available
There are three general credit card types to choose from:
- Cards that give you the chance to earn rewards
- Cards that can help you save money on interest
- Cards that will repair limited or damaged credit
Which of these credit cards should you pick? The answer to this question depends on a variety of factors, including your lifestyle and spending habits. For example, the best travel card in the world will do wonders for a globetrotter, but won’t help a homebody very much. If you’re not much of a traveler, then keep looking for a better credit card based on your unique needs, activities, and interests.
Let’s take a closer look at the three types of cards you should be considering…
Credit Cards That Give You The Chance To Earn Rewards
Are you prepared to pay off your balance in full each month and never incur interest? Then, a rewards credit card will prove to be your best option. You should know going in that these credit cards tend to have higher APRs though. That being said, they also offer cash back rewards, points, or miles on every dollar spent. Many also provide significant sign-up bonuses, so do a little shopping around before you decide how to pick a credit card with the best rewards for you.
Credit Cards That Can Help You Save Money On Interest
Do you have an irregular income? Or plan to use your credit card for emergencies? Then, a credit card with an introductory zero percent APR and low interest may represent your best choice. If you know you’ll likely carry a balance, go for the low-interest rate when choosing a credit card. What’s more, a balance transfer can help you pay off a high-interest debt interest-free. That being said, such offers prove challenging to secure with a low credit score.
Credit Cards That Will Repair Limited Or Damaged Credit
Which kinds of cards should you look for if you have poor credit or little to no credit history? Opt for a secured credit card. These credit cards require a security deposit upfront that gets returned to you once you close the account in good standing or upgrade. A secured credit deposit usually starts at $200. As for those with little to no credit history, such as students, go with an unsecured card meant for college students. You can easily qualify for one of these credit cards, and it’ll put you on the path to developing a credit history.
Ask the Right Questions
Now you’ve got a better idea of the types of credit cards you’re eligible for, you understand that different types of cards can do different things for your financial future, and you have (ideally) chosen the right card type based on your short- and long-term objectives. Congrats! You’re ready to use a comparison tool to browse through credit card offers based on your score and monthly spending. Comparison tools are the best way to help you with choosing a credit card for your unique situation.
However, you’ll likely still be surprised by how many credit card offers are available to you. This is why asking the right questions before you pick a credit card comes in handy.
For Rewards Cards
Are you interested in a credit card that will provide returns in the form of rewards, options, or airline miles? Then, ask the following questions as you explore various offers:
- How complicated is this credit card?
- How do I spend my money?
- How soon will I see rewards?
- Are these rewards worth it?
Know that credit card rewards always come with fine print. Depending on the credit card, however, that fine print section can get very lengthy.
Would you like to avoid dealing with limited award seat availability, rotating bonus rewards, spending caps, and more? We don’t blame you. To keep things simple, look for a credit card with flat-rate, cash back rewards on purchases.
Along with concerns about the complex nature of a card’s rewards, your spending habits should inform your decision. Explore credit cards that offer the highest rewards in the areas where you spend the most. For example, if you’re a regular traveler, go with a card that offers airline miles and no foreign transaction fees. Or, if you’re a big spender, opt for a card with rewards earnings that can offset your annual fee.
For Cards that Save Money on Interest
Is a zero percent APR on balance transfers and low interest most attractive to you? Then, ask these questions to find the optimal deal:
- What’s the card’s balance transfer policy?
- Does the card offer rewards?
- How long does the zero percent APR period extend?
- What’s the ongoing interest APR after the introductory zero percent rate?
Are you most interested in a balance transfer? Then, you’ll need to double-check some things. Namely, what’s the credit card’s policy when it comes to the type of debt transferred? How much is allowable? Is there a difference between balance transfer APR and purchase APR? While a zero percent introductory fee may look attractive if you’d like to save money, consider the long-term implications of your choice. For example, do you plan on carrying balances over several years? Go for a card with a low ongoing APR instead of one with a zero percent introductory rate for a year or less.
It’s also worth exploring credit cards that come with a few months of zero percent APR, such as a sign-up bonus. Although the introductory period will prove shorter, these cards often come with generous ongoing rewards.
For Cards that Repair Limited or Damaged Credit
If you’re a student, new to the credit game, or looking to repair damaged credit, then here are some questions to consider as you explore credit card offers and decide how to choose a credit card:
- Can I graduate to a better card later on?
- How much does it cost to open an account?
- Are there annual fees, and, if so, what are they?
- Will this card help me establish a credit history?
If you’re building credit over the long-term, then go with a credit card that will let you graduate up to the next level. Why is this important? These credit cards let you leave a credit account open longer, thereby boosting your average age of accounts, a critical component of good credit. For secured cards, opt for the one with the lowest security deposit. In some cases, though, the amount you put down ties directly to your credit limit, so do your research before choosing a credit card.
You should also try to avoid credit cards with annual fees, unless you have very poor credit and precious few options. If you can get a card with generous rewards, however, these could offset the annual fee. You should also make sure you go with a card that reports to all three major credit bureaus, otherwise you’ll defeat the whole point of getting a card to build credit.
Need Even More Tips? Read Our Credit Cards 101 Guide.
Now You Know How to Choose a Credit Card!
Have you decided how to choose the right credit card for you? Finding the best credit card based on your financial history, personal spending habits, and long-term goals is critical to taking charge of your life. Armed with the tips above, you’ll be in a better place to narrow your credit card search down to a clear winner. Ultimately, choosing a credit card should involve finding a card that fits with your lifestyle while helping you achieve your financial goals.