A credit card is a bit like a hammer – it’s a very handy tool, but it can also cause damage if used incorrectly. The same advice applies to both of them – choose the right tool for the job and follow the safety rules.
“There are so many cards out there,” says Howard Dworkin, founder of Consolidated Credit Counseling Services and author of Credit Hell: Getting Out of Debt.
“People need to sit down and think about what is important to them,” says Dworkin. Do you want to earn rewards, improve your credit score, or access funds in an emergency? When figuring out how to choose the best credit card for you, it’s important to consider how you plan to use and pay for it.
So, when you choose a credit card, you must take the following six steps:
1. Check your credit score
Your credit score will play a big role in determining which card you qualify for. Typically, a score of 700 or higher will qualify you for a rewards card with a signup bonus or promotional interest rate (and a relatively low regular annual interest rate).
There are many ways to check your credit score, but not all of them are free. Luckily, issuers like Discover and Capital One offer services that allow you to check your account for free, even if you’re not a customer. And if you have other credit cards, chances are some of them will include your free FICO score, updated monthly, in your online account.
You can also request a free copy of your credit report at AnnualCreditReport.com. You are entitled to one free report from each of the major credit bureaus – Equifax, Experian and TransUnion – per year. Review your report for any items that may be holding your account back, including errors or high card balances.
2. Decide how you will use the card
Even before you choose a card, you must determine how you are going to use it. Are you the kind of person who will pay with the card every month without fail, or do you expect the balance to be transferred from month to month? Are you going to use it to pay for everything or just for emergencies?
The answers to these questions will help you narrow down your search and find the card that works best for you.
Creating credit with a credit card
If you’re going to pay your bill in full each month, the interest rate on a credit card doesn’t matter much to you. Look for a better card with no annual fees and a longer grace period so you don’t have to face financial charges. Paying your bills on time and in full is the best way to build and maintain a high level of creditworthiness.
Pay off debt with a credit card
If you’re going to transfer your balance, you want the lowest interest rate, or better yet, the lowest starting rate. The best balance transfer cards offer a long 0% APR initial period during which you can work towards paying off your balance without charging interest.
Get rewarded with a credit card
If you intend to use this card for most purchases, look for a card with a large credit limit and a solid rewards program. You can earn points, miles or cash back with rewards credit cards and earn some cash while you spend or earn points and miles for your next vacation.
Using a credit card in an emergency
If you’re only going to use the card for emergencies, choose a no-frills card with a low interest rate and minimal fees.
3. Consider the interest rate
In a credit card offer, the interest rate is displayed as APR, or annual interest rate. This can be either a fixed rate or a variable rate linked to another financial indicator, most often the base rate.
With a fixed rate card, you know what the interest rate will be from month to month, whereas a variable rate card can fluctuate. However, even a fixed rate card can change depending on certain triggers, such as a delay in paying your card or any other card, or exceeding the limit. Or because the credit card issuer decides to change it. Yes, they really can do it; they just have to notify you.
Remember that the interest rate only matters if you carry over the balance from month to month. If you pay the balance of your statement in full each month, you can avoid interest entirely.
4. Review fees and penalties
Interest is not the only fee you should beware of. General fees include balance transfer, cash advance and foreign transaction fees. There are also penalties for late bill payments or overdraft limits (they don’t reject your card, they just charge you a fee for it).
Look for cards with reasonable fees. For example, for balance transfers, look for initial offers with no balance transfer fees and zero interest rates for at least 12 months.
“This is a very important question,” says Eric Tyson, author of Personal Finance for Dummies. “Perhaps you are not going to carry the scale. But before agreeing to accept a card, read all the terms and conditions, because your situation may change … Stay away from cards with exorbitant fees and high late fees, even if other features seem relatively attractive, ”he says.
5. Look at the rewards
Better reward credit cards offer the opportunity to earn cash, points, or miles on purchases you already make on a regular basis, such as groceries, restaurants, streaming services, gas, or something else. If you can spend responsibly, why not pay with a credit card that will give you something in return?
Look for a program that offers flexibility, such as cash or travel rewards that are easy to earn and use. And find out if the rewards expire or if there are any limits on how many points you can earn or how much you have to earn to use them.
And while long-term value is key, one-time benefits can also be valuable. Many reward cards offer signup bonuses if you reach a certain spending threshold within a few months. You can get a few hundred dollars in cash, a bunch of airline miles, or a hefty amount of points.
6. Fill out an application
Making a decision is the hard part. Once you know which credit card you want, all you have to do is apply.
The easiest and fastest way to apply for a credit card is on the issuer’s website. The app will ask for some basic information such as your address, social security number, and annual income. You may list any income for which you have a “reasonable expectation”, including income from your spouse or relative, if applicable.
Please read the terms and conditions before clicking submit. This can be tedious, but can save you from unexpected fees, outrageous interest rates, or other misunderstandings that detract from the value of the card.
Learning how to choose the best credit card for you is simply a matter of deciding what is important to you financially. How you plan to use it should also influence your decision when choosing which credit card to add to your wallet, so review your spending habits, credit score, and card interest rates when looking for the right card. Having made a decision, apply for a card on the issuer’s website and wait for approval.