How To Choose The Right Credit Card

When you’re in the market for a new credit card, there’s no shortage of options. With so many emails, ads, and promotions urging you to apply, it can quickly become overwhelming to make a decision. If you’re not sure what to look for in a credit card or how to choose one that fits your lifestyle, these tips can help you narrow down your options.

Your next credit card purchase should be customized to fit your needs so it’s the right card for you. We’re here to help you with what perks to look out for, how to choose a rewards card, whether the annual fee is worth it, and more. Here’s how:

Check your credit score

Before you decide what credit card you should get, it’s important to check your credit score first. Why? Because the strength of your credit score can narrow or widen your options.

Credit score requirements for specific cards and credit card issuers vary widely: Most of the top rewards credit cards require at least a good credit score, but there are cards available for people with average credit scores and even for consumers with no credit score or limited credit history.

Before you start your card hunt, you can check your credit score for free to help you decide which applications are worth your time. If your credit isn’t as good as you’d hoped, take the time to improve it before applying for a credit card. The most effective and easiest way to improve your credit is to pay all your bills on time (or early) and pay down your debts to lower your credit utilization ratio.

Even if you have good credit and are choosing from the best cards available, avoid applying for too many cards at once. Every time you apply for a new credit card, a hard pull occurs on your credit report, temporarily lowering your credit score by up to 10 points. Plus, multiple hard pulls in a short period of time could hurt your chances of being approved for cards or other loans in the near future.

Decide what you want to do with your credit card

Once you know what type of card you qualify for, it’s time to explore your options. What do you look for in a credit card? You don’t have to choose just one type of credit card, either.

There are often cards that can help you achieve multiple goals: building credit and earning points, financing new purchases, traveling more, etc. But in general, credit cards tend to fall into specific categories centered around specific purposes.

Credit building cards can help improve your credit score

While using credit cards responsibly can improve your credit score over time, some card issuers offer credit cards designed specifically for people with bad credit or limited credit history. These cards tend to be relatively easy to obtain.

Look for credit building cards that offer free FICO credit score access, credit limit increase screening, and an upgrade path to better cards. These features are the industry standard to help people improve their credit.

There are a few basic types of credit building cards: the most well-known are secured credit cards, unsecured credit building cards, and student credit cards.

Secured cards work just like traditional credit cards, with one big difference: You’ll be required to put down a security deposit when you open the account. The deposit is usually a credit limit and is refundable if you close the card or upgrade to an unsecured card.

Unsecured credit-building cards don’t require a security deposit. Because no security deposit is required, lenders typically approve consumers based on their credit score. As a result, unsecured credit-building cards can be harder to obtain than secured cards.

Student credit cards are designed to help college students build credit. Because most college students have little to no credit history, it’s usually fairly easy to qualify for these cards. These cards usually have low credit limits and high annual percentage rates (APRs). However, they may also offer perks and rewards not typically found on other credit-building cards, such as the ability to earn cash back.

Balance transfer credit cards help you pay off existing debt

According to Bankrate’s latest Credit Card Debt Survey, 60% of people with credit card debt have had it for at least a year, up from 50% in 2021. This form of borrowing is one of the most expensive, so you should pay it off as quickly as possible.

A balance transfer credit card is a great option for paying off credit card debt. By transferring debt from one or more cards to a balance transfer card that offers a 0 percent introductory APR, you can gradually reduce your balance without worrying about interest. Any balance remaining at the end of the introductory APR period will be charged the card’s regular APR, so be sure to create a repayment plan before you begin.

If your current credit cards have high interest rates, a good balance transfer card with a low interest rate or 0 percent introductory APR can be a lifesaver in helping you pay off your debt efficiently and at low cost.

Low-interest credit cards can help you finance big purchases

Low-interest credit cards are a good choice if you need to minimize interest while covering expenses over a long period of time. These cards come in two main forms, offering either an ongoing interest rate lower than the average credit card APR, or a 0 percent introductory APR on new purchases.

If you have a big expense coming up, like buying new furniture, moving, or remodeling, cards that offer a promotional APR on your purchase are the best option. These cards allow you to pay off your expense over time while avoiding interest. Promotional APRs on new purchases usually last for 12 to 21 months, after which the card’s regular APR applies to any remaining balance.

On the other hand, if you plan to carry a balance after the promotional APR period, or if you typically carry a balance from time to time, you should focus on the continuing APR rather than the introductory rate. Some of the best low-interest cards offer a variable APR range that starts around 18 percent. While this may not seem low, the average credit card APR is now over 20 percent.

Credit requirements for these cards vary, but you’ll usually need at least good credit to secure a decent ongoing APR.

Rewards credit cards let you earn cash back, points, and miles

Typically reserved for people with good to excellent credit scores, rewards credit cards are a great choice for people who don’t want to worry about building credit and want to earn cash back or points through sign-up bonuses and purchases.

There are several types of rewards credit cards to consider.

• Cashback Card. These usually give you a percentage of your spending back and can be redeemed for direct deposit, statement credit, or check.
• Points earning card. If you want variety in how you redeem your rewards, a rewards card may be the best option for you. Earn points instead of dollars as you spend, and points can usually be redeemed for cash back, travel, merchandise, and more.
• Miles Earning Cards. Are you a jet-setter? Earn airline miles as you spend, which can usually be redeemed for flights with a particular brand or partner airline.

When comparing two cash back cards, consider your usual spending habits: A card that offers high cash back on categories like groceries and gas may be ideal for families who are on the go a lot, while a flat-rate cash back card may suit someone who wants a straightforward rewards strategy.

The amount of rewards you earn on each purchase varies, but the best flat-rate cash-back cards offer at least 2 percent cash back on all purchases, while others offer up to 5 percent (or more) in bonus categories and 1 percent cash back on everything else.

On the other hand, if you’re looking to accumulate points or miles to save up for your next trip, rewards cards are a great choice. Look for a card that gives you more points or miles in the categories you spend the most, with at least 3x points or miles per dollar spent. However, as with cash-back cards, there are also simple travel cards that earn 1x to 1.5x points or miles per dollar on all purchases.

Analyze your current spending

What will you spend most of your money on? You can estimate it, but it’s not necessary.

An often overlooked strategy when choosing a credit card is to look at the categories in which you spend the most on your current credit cards.

An easy way to find this information is to look at your end-of-year credit card statement, which will break down your purchases throughout the year into categories, plus show you the interest and fees you paid. Knowing where your money is going is key to finding the right credit card.

For example, if you have the credit card that offers the highest rewards rate on gas and grocery purchases, but you spend mostly at restaurants and take the subway to get everywhere, you’re doing yourself a disservice. Or, if you carry a balance throughout the year and see a high interest total on your summary, you might want to opt for a lower-interest credit card or balance transfer card.

To get the most out of your next credit card, it needs to fit your spending and goals, not the other way around.

Choose the best card

In addition to choosing the type of credit card, we recommend that you choose a credit card that offers benefits and features that suit you. Here are some benefits to look out for:

Secured and Student Credit Cards

• Increase your credit limit: When considering a secured credit card, look for the option to periodically increase your credit limit for responsible usage. This usually means updating the card issuer on your income regularly, but the potential improvement to your credit score may be worth it.
• graduation: The ultimate goal of getting a secured credit card or student card is to eventually have enough credit to get an unsecured card. Some cards make this transition easier by letting you move to an unsecured card when your credit improves or you graduate from college. No new application is required.

Low interest rate, 0% APR credit card

• First time 0% discount periodWhile no credit card offers 0 percent interest forever, there are several top-rated cards that offer 0 percent introductory periods of up to 21 months.
• No penalty APR or late fees: Some credit card companies charge steep fees and penalty APRs for late payments. If you’re new to credit cards and don’t want to incur high costs for late payments, consider a card that doesn’t have these fees.

Rewards Card

• Reward Type: Credit card rewards come in many different types, including cash back, airline miles, points, etc. In most cases, cash back is the easiest option, but sometimes points or airline miles can be a better deal.
• Less expenditure requiredSome rewards cards require you to meet certain spending limits before you’re eligible for bonuses or special offers. If you’re considering a rewards card and want to earn a sign-up bonus, for example, be sure to pay attention to the spending requirements so you can exceed those limits without overspending.
• No (or low) annual fee: Rewards cards offer the best perks, but many come with an annual fee. Often the benefits outweigh the annual fee, but there are plenty of cards with no annual fee.

Understanding interest rates and fees

Credit card issuers make their profits from interest and fees. Federal law requires all credit cards to disclose interest fees up front, so it’s important to find out these additional costs before you apply for a new card.

interest rate

Credit card interest rates vary widely. Some cards offer rates that are lower than the current average interest rate, while others may charge significantly higher rates. A card’s APR should be a determining factor in your decision-making process, especially if you think you’ll need to carry a balance.

Fee

Fees vary depending on the type of credit card you use. Some of the most common fees include:

• Annual fee: Many credit cards have an annual fee, which typically ranges from $95 to $550 or more. Some issuers will waive the annual fee during your first year of card ownership, or even have the fee waived if you apply.
• Balance transfer fee: If you already have a credit card and are struggling to pay off your high-interest credit card debt, a balance transfer card could be a good option. Balance transfer fees are typically 3 to 5 percent of the amount transferred, with a minimum of $5 to $10.
• Late fees: If you pay your credit card statement late, you may be charged a late fee, which varies depending on the issuer and the number of times you’ve paid your balance late.
• Cash advance fee: A cash advance is when you use your credit card to withdraw money from an ATM. Avoid cash advances whenever possible. The fees associated with a cash advance can be significant, typically 3-5 percent of the amount withdrawn. You also pay interest immediately on a cash advance, which is often higher than the regular APR.
• Foreign Transaction Fee: If you use your credit card to make purchases in a foreign currency outside the U.S., or even if you shop online from home, you may be charged foreign transaction fees. These fees are typically around 3 percent per transaction. If you travel a lot, consider a credit card that doesn’t charge foreign transaction fees.

Conclusion

With so many different types of credit cards on the market, it can be difficult to find one that fits your needs. Once you know the features, benefits, and goals you’re looking for, you can narrow down your options and make the decision easier. If you still need help choosing the right credit card, Bankrate’s CardMatch tool will do some of the heavy lifting for you by finding credit cards that match your credit profile and goals.