Credit cards can be valuable tools when you match them to your spending habits. You can earn cashback or rewards on purchases you regularly make, and protect yourself with features like extended warranty coverage, travel insurance, and purchase protection.
However, with so many options available, selecting the right credit card for you can be a daunting task!
Here's how to narrow down your options, step by step.
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1. Know Your Credit Score
Before diving into the world of credit cards, it's important to have a clear understanding of your credit score.
Your credit score is a number that represents your creditworthiness. Credit card issuers will look at it to decide whether to approve you for a card.
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 (this is when a lender checks your score/history — not when you check it!).
You can access your score by creating a free account with each of the major credit bureaus: Equifax, Experian, and TransUnion.
There are also services that will check and monitor your score for free, such as myFICO, Credit Karma, and Credit Sesame. Some of these have paid options if you'd like to add on features like identity theft protection.
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 your credit score will give you a better idea of which cards you should apply for.
READ MORE: How To Check Your Credit Score for Free
2. Understand Your Spending Habits
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 cashback on gas if you don’t drive very much.
3. Decide On Your Goal
Narrow your focus to a certain type of credit card that will best suit your needs.
If you’re just starting out in the world of credit cards, you will likely need a different type of card than someone looking to optimize travel rewards or fund a large purchase.
Here are some common goals that might suit your situation.
Goal: Build 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 build their credit.
Here are some options to consider:
- Secured credit cards: Secured cards require a security deposit upfront, which then becomes your credit limit. This means less strict eligibility requirements — some issuers won’t even require a credit check before approving you for a secured credit card.
- Student credit cards: These cards tend to have few fees, some form of rewards, and some even offer incentives for good grades or good payment habits.
- No-annual-fee credit cards: Skip the glamor of high-fee cards with big perks when you're just starting out. Focus on the basics of responsible card usage instead. There are plenty of no-annual-fee cards that offer modest rewards or even a great welcome offer.
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.
Goal: Earn rewards
If you’ve already got good credit and are looking to get rewarded for your spending, there are two types of rewards cards: cards that earn cashback and cards that earn points or miles.
- Cashback credit cards: These cards allow you to earn a percentage of your spending back in cash rewards. They're a great option if you prefer simplicity. Some cards offer higher cashback rates in specific spending categories, such as groceries, gas, or dining.
- Travel credit cards: These cards earn either points or miles that can be redeemed for flights, hotel stays, and other travel expenses. Credit card companies often partner with select airlines and hotels, so if you play favorites when booking travel, choose a card that will reward you for that. Plus, many travel cards offer lush travel perks, like lounge access.
COMPARE: Best Rewards Credit Cards
Goal: Pay off debt or a large purchase
Some cards have an intro offer of 0% APR (typically for 12-18 months). These are ideal if you have a clear plan to pay off your entire balance during the interest-free period.
- 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.
- Funding a large purchase: A card with 0% APR can help you manage the cost of an upcoming large purchase, like kitchen appliances or a new couch.
While a credit card with 0% APR can significantly reduce your interest burden, it’s important to note that the intro APR will generally only cover purchases or balance transfers made within a specific window. Plus, 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 know your credit score, spending habits, and the type of credit card that will work best for you, it's time to compare cards and find the one that offers the best value.
Here are some factors to consider:
Does it have an annual fee?
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.
What’s the regular APR?
While it's best to pay off your credit cards in full every month, it’s still wise to look for lower interest rates in case you ever end up carrying a balance.
Even with the best planning, financial emergencies happen, and if you don't have an emergency fund, carrying a balance on your credit card may be the only option for covering unexpected expenses.
READ MORE: How Does APR Work on a Credit Card?
How do you earn rewards?
Not all rewards cards work the same. Some offer flat-rate rewards on all purchases, while others provide higher rewards in specific categories. Choose a card that aligns with your spending patterns.
You’ll most likely find bonus rewards rates for things like dining, groceries, travel, or gas. If you spend a lot in these categories, you might want to go for one of them. Or, if your spending is pretty varied, a flat-rate card is a good choice.
There are also rotating cashback cards, where the bonus categories change each quarter.
Does it offer a welcome bonus?
Many credit cards come with a welcome offer, such as bonus cashback or points for spending a certain amount 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 the introductory offer.
Are there additional perks?
Beyond rewards, credit cards may offer benefits like travel insurance, complimentary memberships, purchase protection, and concierge services. These perks can add significant value — but only if you'll frequently use them.
Make sure you understand the value of all the potential rewards, so you can make a more informed decision.
FAQs
How do I choose 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 eligibility 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 flat-rate cashback card, rather than a card with rotating categories or points to track.
How do you choose a business credit card?
When selecting a business credit card, look for rewards or benefits relevant to your business spending, such as travel rewards if you frequently travel for work.
Consider how the card's 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. Good credit is between 670 and 739. Above 740 is very good, and anything in the 800s is excellent.
TL;DR: Finding the Right Credit Card
Before considering any credit card, make sure you know your credit score and where you spend your money. Then match the card to those factors.
If you're building credit, focus on no-fee cards with manageable limits. If you want rewards, pick cards that align with your biggest spending categories. If you're tackling debt, prioritize low APRs over flashy bonuses.
Don't get swept up by big welcome offers or complex reward structures that don't fit your actual lifestyle. A simple cashback card that matches how you spend will almost always beat a travel card you'll never use properly.
Start with your real spending habits and remember you can always upgrade later as your credit improves.
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