No credit card is alike. There isn’t really an answer for what is the best credit card? There is, however, a credit card that will best suit your needs and financial circumstances.
Every person is looking for something different in their credit card. Are you looking to get cash back or travel points? Do you have bad credit or no credit and are looking for a credit card you can qualify for? Whatever it is you are seeking from a credit card, make an informed choice based on your needs. Let’s uncover how to choose the right credit card for you.
1. Know your credit score
First things first. Before you apply for a credit card, you need to know your credit score. Your credit score will give you an understanding of what credit cards you can qualify for. If you have an excellent or good credit score, more credit card options will be available to you.
Every time you apply for a credit card, there is hard inquiry placed on your credit history. A hard inquiry can reduce your credit score by a few points.
Also, if you get denied and have to apply for another credit card or multiple credit cards, your credit score will go down even more. This decrease is from the hard inquiries yes but also, when applying for multiple credit cards, the credit bureau will assume you are going through a financial hardship which makes you more of a risk to lenders. Therefore, your credit score will decrease.
You do not want to apply for multiple credit cards, so knowing your credit score makes it clear to you what you can apply for and get.
You can find out your credit score through Credit Sesame who offers free credit scores with no hard inquiry. Also, if you already are a credit cardholder, credit card issuers often give free FICO credit for members.
2. Get clear with your goals
There are tons of different credit cards to choose from with different features. Ask yourself what you are wanting from your credit card and how you are going to use it.
Build or improve your credit score
This is your first credit card or you have a low credit score.
If you are a college student, you can apply for a student credit card. These cards are great because they do not require a cosigner even when you have no credit history. The credit limits are generally low since you don’t have a regular income. However, they are a great to start building your credit history.
Things to consider for student credit cards:
- How much are the annual fees?
- Can I upgrade this card later down the road to a better card?
If you have a low credit score, and it’s time to rebuild your credit, secured credit cards are your best friend. Secured credit cards are cards that require collateral. The cardholder must provide a cash deposit in order to use the card. For example, the cardholder provides a $500 deposit and will have a credit limit of $500. You can add to your deposit to increase your credit limit. Often, credit card issuers raise the credit limit when the cardholder shows consistent on time payments.
Things to consider for secured credit cards:
- Double check that the secured credit card is recognized by the 3 major credit bureaus in order to improve your credit score.
Low interest credit card
If you know you will be carrying a balance on your credit card, opt for a credit card with a low interest rate (APR). These credit cards are often used by people who do not have regular income or are planning for emergency purposes.
There are cards available that offer introductory rates of 0% APR for a set period of time. These cards are a good option for people who are planning on carrying a balance for a short period of time before the introductory interest rate is over. If you plan to carry a balance for a long period of time, then it may work out better to choose a credit card with ongoing low APR.
A balance transfer offer is a great option for people who have high interest debt on another credit card. Here you pay off one credit card by transferring the balance to another. For example, on your current credit card you are holding a balance of $5000 at an APR of 21%. If you qualify for another credit card with a low promotional APR at 4% for 12 months, you can transfer your balance at a fee and pay off your debt on that new credit card faster.
Low APR credit cards and balance transfer are great however, offers are typically only available to people with good or excellent credit scores
Things to consider for low interest credit cards:
- How long does the 0% APR last – is it long enough to pay down your debt interest free?
- What is the balance transfer policy – what are the fees?
- Can you also get rewards with the credit card?
One of the best perks of using your credit card comes from rewards credit cards. Rewards credit cards offer travel points, cash back or store credit.
If pay your balance every month, a rewards credit card is the way to go since they have higher APRs. You do not want to carry a balance on these cards if you can help it. There is a large selection of rewards cards for people with good or excellent credit scores. But there are a handful of cards offered to people with average credit scores.
Things to consider for rewards credit cards:
- What kind of rewards to I want ie: cash back, travel points, gas cards, retail rewards or general rewards?
- How do I spend in order to maximize my rewards? Select a card that maximizes points where you spend more often ie: grocery, gas, travel.
3. Take the leap
Once you find a credit card the suits your needs and will be approved based on your credit score, go ahead and apply. Start using it right away so you can build your credit, lower your debt or maximize your rewards.
Credit Card Tips:
- Pay your minimum monthly payments to avoid late fees and maintain your credit score
- Keep your balances low so your credit utilization rate stays low and your credit score will increase
- If you can, pay the bill in full. Don’t live beyond your means. Buying extra is not worth the stress and heartache of debt