Credit card offers are a dime a dozen – they are in your mailbox, on the internet, in malls and stores where you shop. It’s really tempting to apply for a credit card with all the attractive deals or the discounts that come with them. But have you ever stopped to give it some thought and search what would be the right card for you? Do you know that you could save hundreds, and maybe even thousands of dollars by shopping around for the right credit card?
Of course, it’s easier now to compare the different offers, rates, and rewards programs. This site, as well as many other sites, can provide useful information about the credit cards. Nevertheless, it’s still intimidating to choose the right one for you.
Choosing a new credit card is obviously not a regular activity for many of us. For one, when you apply, you allow a hard inquiry into your credit report. If too many lenders are trying to look into your record over a short period of time, it will not look good for you. Then again, it’s not a sound thing financially to have more open accounts than you need – for security and simplicity.
We’ll give you some tips what to look for when choosing a new credit card. It’s really simple but these tips will help steer you towards the cards that fit your creditworthiness and spending patterns.
Pay Attention to Your Credit
If you want the best credit cards on the market, make sure that you really have good credit. One thing is sure – if you’ve had past credit problems, scratch these cards are off the list. Sometimes, the card company might still decline you even if you’ve been making payments on-time religiously because you haven’t had credit long enough.
If you have less than 5 years of credit history, don’t get your hopes up too high. You’d probably end up getting an inferior rewards program and paying for an annual membership fee. If you want to know more about choosing a card when you have limited credit, read on here.
If your credit is solid, that’s great. The problem is, card companies have declined some people with good credit. They also look at factors like having too much liabilities or insufficient income. These may prevent you from getting a card even if you have an awesome credit.
Annual Fee Vs Free Annual Fee
You have a choice to get a card with an annual fee or one with a free annual fee. You might be asking: why would you get one where you have to pay something when there’s a free one available? After all, an annual fee can range from $49 to $550 for a credit card. The annual fee will basically provide the cardholder more valuable purchase rewards and benefits than their ‘free’ counterparts. A good rule to follow your annual fee decision is how often you plan to use the card. If you will be paying $49 for the card, you should earn at least $49 in rewards to break-even and maybe profit from the rewards. If you plan on using the card sporadically, a no-fee card is better.
You can check out cash back cards because many of them do not charge an annual fee. This makes them a good option as a second card or a primary card of the budget-conscious. Travel reward cards come in all shapes. There are a handful of free ones, usually for hotels but the majority of them charge an annual fee. Cards with an annual fee often earn more rewards per dollar spent than the free credit cards. Some also include annual benefits like a free hotel night or a free checked-in bag.
Will you pay off your entire credit card balance each and every month?
When it comes to credit card bills, we often put them on the low priority list. Do you consistently pay your credit card balance up to the last cent each month? Or, do you use your credit card to pay off a big-ticket item or an over-budget month over several months?
If you habitually carry a balance – or even from time to time – then, it’s APR rather than rewards. This item is important. No matter how incredible the rewards are on a credit card, you can save a lot more money by going for a card with a lower interest rate. It may not even offer a rewards program at all. If you expect to carry a balance once in a while, choose the card with the lowest APR.
Here’s a tip:
Use a credit card with a 0% intro APR to make big purchases that you plan on paying off over time. If you can pay everything before the intro period expires, you wouldn’t have to pay anything in interest. Plus, you might even come out ahead because of the sign-up bonus and rewards.
If you want to avail of a balance transfer offer from an old card to a new credit card with a promo zero percent APR, consider first how much you will pay in balance transfer fees.
Identify The Relevant Card For You
Credit cards generally fall into these three categories:
- Cards that will help improve your credit when it’s limited or damaged.
- Cards that will save you money on interest.
- Cards that will give you rewards.
The best card for you is one whose features will meet your specific needs. Let’s say you don’t travel a lot – then the best travel card in the world isn’t going to do you a lot of good.
It’s Rewards, Travel or Cash Back Cards (if you want to earn rewards)
If you are going to pay off your balance in full every month and never incur interest, a rewards credit card is perfect for you. Yes, they usually have a higher APR but they offer larger sign-up bonuses and let you earn points, miles or cash back on every dollar you spend. If your spending is mostly concentrated in a single area like gas, groceries or airlines, you can look for a card that will give you extra points in that area. Are you just a general big-spender? You’ll be better off using a cash-back card that offers rewards as a function of total dollars spent across the board.
Be warned that cards with juicy rewards also come with annual fees so you’ll want to do your math on how to recoup the fee. For a card with a 2% cash back and a $50 fee, divide $50 by 0.02 which will give you $2,500. If you will be spending more than that for the year, then the card will pay for itself. Less than that means you’re going to lose money.
If you travel very frequently or would like to, it may be worth paying for a card that helps you quickly chalk up miles.
Some also offer points that you can exchange for plane tickets or hotel stays or even just to avoid paying for the normal $25 for a checked-in baggage. Cards with excellent rewards programs generally require a good to excellent credit score to qualify. These cards are not good for those who historically carry balances because they tend to have higher interest rates than other cards. Their finance charges can easily offset the value of the rewards.
It’s Low-interest, 0% APR or Balance Transfer Card (if you want to save on interest)
A card with an introductory 0% APR and ongoing low interest would be a good match for certain individuals. If you’re planning to use it only in case of emergencies or if you have an irregular income or carry a balance from time to time, then get one of them. With a balance transfer offer, you could pay-off a high-interest debt without paying interest. But here’s the thing: it’s hard to get one if you have an average or poor credit.
Are you seriously trying to pay off a big debt? You might save some money by transferring the balance to a card that offers a low or 0% “teaser” rate.
Here’s the scary part though: the interest rate will usually soar after a couple of months. So, read the terms carefully and make sure you have enough money to pay off the balance within the interest-free window. Incidentally, watch out for the balance transfer fees because they can wipe out some of the benefits of a transfer.
It’s Student or Secured Credit Card (if you want to build or rebuild credit)
A student credit card or unsecured card for college students who are new to credit is easier to get than other types of credit cards. The same thing is true for secured credit cards which will require a security deposit of $200 or more. The bank will return the deposit to you when they upgrade your account or you close it in good standing. Even if you have poor credit or no credit, it’s easy to qualify for this card. You simply put money into a deposit account with the issuer and use that as “collateral” for the full amount of your line of credit.
Since the issuer has no basis of how you use your credit card, they would want to protect their money by having collateral.
If you don’t pay your bill, the bank will simply take the money in the deposit account to pay for your card. The credit limit on a secured card will typically be much lower than what you’d get on an unsecured card because it will depend on your collateral. Using your credit card responsibly might help you rebuild your credit and the bank may increase your credit line down the road.
You’ve Found The Best Credit Card. What Now?
Choosing the best credit card is an important thing but it doesn’t end there. Use your card properly to get the most for your money. If you’re still establishing credit, pay your balance in full every time and avoid using too much of your available credit. Stick to your debt payoff plan in case you get a 0% APR deal. In the event that you want to get rewards, use your card for everyday purchases and then pay them off in full every cycle.
The card you pick should help you achieve your financial goals in the lightest and easiest way possible. That’s a must whether you’re trying to build credit, borrow money or earn rewards. Never settle for anything less.