Credit cards can be valuable tools when you align them to your spending habits and financial goals. However, with the multitude of options available, selecting the right credit card can be a daunting task!
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- Understand your credit score and what types of cards you will qualify for, the better your credit, the more rewards you can earn.
- Analyze your spending so you know which categories you spend the most money in, this will allow you to choose a card that will let you maximize the rewards.
- Consider what you are looking for in a credit card. Do you want cash back, travel rewards, do a balance transfer, or do you want to improve your credit?
- Look for a card that you can qualify for and meets your goals.
Know your credit score
Before diving into the world of credit cards, it's important you have a clear understanding of your credit score. Your credit score is a number that represents your creditworthiness and plays a pivotal role in the approval process for credit cards. It's based on factors like your payment history, credit utilization, length of credit history, types of credit, and how often or recently you've had credit inquiries.
To learn more about your credit, you can request a free credit report annually from each of the major credit bureaus. Your report won’t contain your credit score, though. You can get access to your score by creating a free account with each of the major credit bureaus. Many credit issuers also offer free access to your credit score via your account, so if you already have a credit card you may be able to find your score there.
The higher your credit score, the more likely you are to qualify for credit cards with competitive interest rates and better rewards programs. Knowing exactly what your credit score is will give you a better idea of which credit cards you should apply for.
Understand your spending habits
Understanding your spending habits is crucial when choosing a credit card that suits your lifestyle. Take some time to review your past few months' worth of expenses and categorize them into different spending categories such as groceries, dining, travel, and entertainment.
This will give you a clearer picture of where you spend the most and help you identify the types of rewards or benefits that would be most beneficial to you. For example, don't get a card that gives bonus cash back on gas if you don’t drive very much.
Decide on your goal
Narrowing your focus to a certain type of credit card that will best suit your needs can help you streamline your research. If you’re just starting out in the world of credit cards, you will likely need a different type of credit card than someone looking to optimize their travel rewards, pay off existing debt or fund a large purchase. You can set yourself up for success with your new credit card by understanding what your goal is with the card.
Choose a credit card: Building credit
Credit cards can be a bit of a Catch-22: You need decent credit to get a good credit card, but you generally need to have a credit card to build credit in the first place. I know that doesn't make sense, but don’t worry! We all start somewhere, and there are many credit cards tailored to helping newcomers start building their credit. Here are some things to keep in mind:
- Secured vs. unsecured: Unsecured credit cards are what you might think of as regular credit cards and eligibility is based on your creditworthiness. Secured credit cards, on the other hand, require a security deposit upfront which then becomes your credit limit. This added security makes credit card issuers a lot less strict on eligibility requirements — some won’t even require a credit check before approving you for a secured credit card.
- Student vs. mainstream: If you’re a student, you might consider a credit card specifically suited for college students. These cards tend to have few fees, some form of rewards and some even offer incentives for good grades or good payment habits.
- Fee vs. no-fee: While many cards offer alluring perks to new cardholders in exchange for an annual fee, it’s a good idea to skip the glamor and focus on the basics of responsible card usage when you’re just starting out. There are plenty of no-annual-fee credit cards available that will offer modest rewards or even a great welcome offer while you learn how to use a credit card.
By making on-time payments and keeping your credit utilization low, you demonstrate your ability to manage credit responsibly. As you improve your credit score, you increase your odds of qualifying for better credit cards with more enticing rewards.
Choose a credit card and start earning rewards
If you’ve already got good credit and are looking to get rewarded for your spending there are two types of rewards cards: cash back and points or miles.
- Cash back credit cards: These cards allow you to earn a percentage of your spending back in cash rewards. They're a great option for those who prefer simplicity and want to earn rewards on everyday purchases. Some cards offer higher cash-back rates in specific spending categories, such as groceries, gas, or dining. That’s why it’s important to figure out where you tend to spend your money before choosing a cash-back credit card.
- Points or miles credit cards: Ideal for frequent travelers, travel rewards cards offer either points or miles. If you love to travel, you can earn points or miles that can be redeemed for flights, hotel stays, and other travel expenses. Credit card companies often partner with select airlines and hotel chains, so if you play favorites when booking travel, choose a credit card that will reward you for that. Plus, many travel credit cards offer lush travel perks, like lounge access and complimentary travel credits to make your travel experience more enjoyable.
Related: Best Rewards Credit Cards
Paying off debt or a large purchase
Cards with 0% APR on balance transfers or purchases are ideal for those who have a clear plan to pay off their entire balance and can take advantage of the interest-free period to make substantial payments toward their credit card debt.
- Paying off debt: Balance transfer credit cards allow you to transfer your existing balances from higher-interest cards and offer an introductory period with low or zero interest. This means you can save on interest payments and make a real dent in your balance!
- Funding a large purchase: You can also get a card with 0% APR on purchases to help manage the cost of a large upcoming expenditure, like large kitchen appliances or a new couch. This will allow you to pay off your big ticket item over time without paying extra interest.
If you're committed to paying off your debt within the introductory period, typically ranging from 12 to 18 months, a credit card with 0% APR on balance transfers or purchases (or both) can significantly reduce your interest burden. However, it’s important to note that the intro APR will generally only cover purchases or balance transfers made within a specific window and any remaining balance at the end of the intro offer will be subject to the regular APR. Balance transfer fees will also add to your total balance, so be sure to keep those in mind, too.
Important card features to consider
Once you identify your credit score, understand your spending habits, and determine what type of credit card will work best for you, it's time to compare credit card offers to find the one that offers the best value. Here are some factors to consider during this process:
Does it have an annual fee?
Some credit cards come with an annual fee, while others do not. Consider whether the benefits and rewards offered by the card justify the annual fee. If you're a frequent traveler, for example, a card with a higher annual fee might be worth it if it provides significant travel perks and rewards that balance out the cost of the fee.
Related: Best No-Annual-Fee Credit Cards
What’s the regular APR?
While it’s in your financial best interest to not carry a balance on any of your credit cards from month to month, it’s still wise to seek out credit cards with lower interest rates in case you ever end up carrying a balance. Even with the best planning, financial emergencies happen, and carrying a balance on your credit card may be the better option for covering unexpected expenses.
Can you earn rewards?
Evaluate the reward structure of a handful of different credit cards before you choose one. Some cards offer flat-rate rewards on all purchases, while others provide higher rewards in specific categories. Choose a card that aligns with your spending patterns to maximize your rewards.
You’ll most likely find bonus rewards rates for dining, groceries, travel, or gas, so if you spend big in these categories, you might come out ahead with a tiered rewards structure that rewards you based on usage. That said, if your spending is pretty varied, a flat-rate card is a good choice to earn rewards on all your spending. Dynamic spenders can also opt for a rotating cash back card, where the bonus categories change each quarter, to earn boosted rewards on a range of categories.
Here's our list of the best cash back credit cards.
When you choose a credit card, does it offer a welcome bonus?
Many credit cards come with a sign-up bonus, such as bonus cash back or rewards points for reaching a certain spending threshold within the first few months. Consider these offers, but don't let them overshadow the card's long-term benefits! Don't let them entice you into paying an annual fee that won’t be worth it after you cash in on that introductory offer.
Are there additional cardholder perks?
Beyond rewards, credit cards may offer additional benefits such as travel insurance, complimentary memberships, statement credits, purchase protection, and concierge services. These perks can add significant value, especially if you frequently use these services. Understanding the value of all the potential rewards a credit card offers can help you make a more informed decision about which card is right for you.
FAQs
How to choose a credit card for the first time?
If you're choosing a credit card for the first time, start by understanding your credit score and financial habits. Since you likely won’t have an established credit history, focus on credit-building cards or cards with lower credit requirements. Look for cards with no or low annual fees and manageable credit limits. To keep things simple, you may want to consider starting with a straightforward cash back or credit-building secured credit card to help you establish and practice responsible credit use.
How do you choose a business credit card?
When selecting a business credit card, prioritize the specific features that align with your business's needs. Look for credit cards that offer rewards or benefits relevant to your business spending, such as travel rewards if you frequently travel for work. Consider how the card's rewards and perks (like expense tracking, reporting tools, or employee card options) can contribute to your business's growth and profitability.
What credit score do I need to get a credit card?
No matter your credit score, there's a credit card out there for you. However, if your score is under 580, you will be considered to have “poor credit” and may have to get a secured credit card.
You'll need good or excellent credit to qualify for cards with more favorable terms, like low fees and rewards.
If your score is between 580 and 669 you have fair credit. Good credit is between 670 and 739. Above 740 is very good and anything in the 800s is excellent.
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