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How To Choose The Right Credit Card For Your Needs

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? In the article, we'll give you some tips what to look for when choosing a new credit card. 

You can trust the integrity of our unbiased, independent editorial staff. We may, however, receive compensation from the issuers of some products mentioned in this article. Our opinions are our own.

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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.

According to Experian, the average credit score for the United States residents was 703 across all age groups in 2019. This was only 3 points below the average credit score for people in age 50 – 59, which scored 706 points. Adults in the 20 – 29 age bracket had the lowest credit score at 662. This is 13.14% less than those in the age group of 60+ who scored 749 points.    

Chart: Credit Scores in the U.S. 2019, by Age

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.

Based on a survey by CreditCards.com, the national average credit card rate in 2019 stood at 17.57%. Americans who held bad credit cards were charged the highest interest rate of 24.99%, while the credit card for low interest enjoyed lower rates at 14.61%.

Chart: Credit Card Rates in the U.S. 2019, by Card Type

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.

What's the Best Credit Card Company?

There are pros and cons for each company. The JD Power 2020 US Credit card satisfaction study ranked American Express as the best credit company in 2020. Based on a customer survey conducted during the COVID-19 period, American Express scored the highest score of 838 among national issuers. A higher percentage of customers gave a favorable impression of American Express response during the pandemic.

American Express was named the best credit card company in 2020 by JD Power's 2020 US Credit Card Satisfaction Study. American Express had the highest score of 838 among national issuers in a customer survey conducted during the COVID-19 period. During the pandemic, a higher percentage of customers said American Express responded well. Discover is ranked second (837) while Bank of America is ranked third (812).

With an 816 score, Regions Bank is the most satisfied customer among regional bank issuers. With a combined score of 815, BB&T and PNC are tied for second place.

J.D. Power U.S. Credit Card Satisfaction Study 2020


American Express was followed by Discover at 837 points and Bank of America at 812 points. Among regional issuers, Regions Bank scored the highest score at 816, while BB&T (now Truist) and PNC bank tied in the second position with a score of 815.

How Do I Get The Best "Value For Money" Card?

Many consumers are naturally curious in which credit cards provide the best value for their money, as well as which credit cards can best assist them in managing their finances and making long-term plans.

It would be fantastic if there was a single credit card that could assist everyone in managing their finances, with perks tailored to their specific needs. There's only one problem: there's no such thing as a perfect credit card for every circumstance.

Credit cards are made to be used in a variety of settings. That means that, regardless of your situation, there is undoubtedly a decent credit card for you, but the greatest credit card for you will not be the same as the best credit card for someone else.

Choose the credit card with the qualities that are most important to you while evaluating credit card offers. Find a credit card with the lowest cost, such as a low APR and no annual fee, if you're wanting to develop credit. Additionally, look for credit cards that report monthly credit card activity to the three credit agencies to assist you in establishing credit.

Here are some things to think about while picking a credit card.

  • Why are you looking for a credit card? Are you looking for a solution to keep track of your monthly expenses? Do you need to improve your credit score? Do you want to learn how to manage your money and create a credit history as a college student? Are you a regular traveler looking for a credit card that will help you save money on your next trip?
  • What is your credit score right now? Your credit score may have an impact on the best credit card for you. The higher your credit, the more likely you are to be approved for cards that offer stronger rewards programs and additional benefits to cardholders.
  • Do you have a family of your own? If you have a family, particularly children, you may require a different type of credit card than if you are single or want a business-use card. Obtaining a card that provides discounts on groceries, household goods, and other items can significantly reduce your family's spending.

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.

How Do I Know if I'm Qualified?

You may not be approved for a card with a significant sign-up bonus and enticing benefits if you have terrible credit. Because each credit card application might cause a temporary blemish on your credit report, use an online tool to pre-qualify. You can also phone the card issuer and inquire about the requirements for a certain card.

Your credit card application may have been denied for a variety of reasons. Among the most common explanations are:

  • High Debt Balances: If you have high balances on your existing loans and credit cards, you'll have a high debt utilization ratio, which makes lenders hesitant to give you more credit. To improve your chances of approval, keep your existing account balances at 30 percent of the credit limit or less.
  • Several Inquiries: It is a red flag to potential lenders if you have applied for many credit cards and loans.
  • Recent Delinquencies: If you've recently missed a loan or other bill payment, it'll hurt your chances of getting approved.
  • Limited Credit History: This can be a catch-22, because it can be difficult to obtain credit if you have no credit history. You could need to look for a student or secured credit card, which would usually have less restrictions.

When Should You Apply for a Credit Card?

There are several occasions why applying for a new credit card is a smart idea. These are some of them:

  • To Get Out of Debt: If you're having trouble paying off your credit card debt, a new card with favorable balance transfer terms could be able to help. There are credit cards that provide low or no interest for up to 21 months. This will allow you to pay the same amount while lowering your balance because you won't have to pay interest.   
  • When You First Start University: Many financial experts advise that you begin establishing credit as soon as possible. It's a good idea to open your first card when you turn 18 or start planning your college career. Student cards are a wonderful way to build credit while also having a low credit limit. There are even cards that reward you for keeping your grades up.
  • To Build Your Credit: A secured card might help you rebuild your credit and boost your credit score if you've experienced credit problems in the past. Secured cards are a good option for people with bad credit because they have less stringent qualification standards than other types of cards.      
  • You're Considering Buying an Expensive Item:  If you're planning a major purchase, a 0% introductory rate credit card will allow you to stretch the expense over time without incurring interest. You may charge $3,000 and make $200 monthly payments if you assume an average 16.97 percent APR and a card with a 0% intro rate for 15 months. This will save you about $396 in interest charges.
  • There's a Fantastic Welcome Bonus: Finally, you might stumble across a fantastic unique deal or welcome bonus. If you fulfill the spending requirements, this could boost your rewards for the first few months after you start an account. However, you should only apply for a card now if you are confident that you can easily achieve the reward requirements.

FAQs

If you're applying for your first credit card, you'll want to weigh your alternatives carefully. You should have no problems if you already have a solid credit score from paying bills on time or repaying college or vehicle loans. Simply select a card that best suits your credit history and fill out an application.
It will be more difficult if you don't have any credit history. You'll need to find a credit card that doesn't demand a credit score as a starter. This segment is filled by secured or student cards. These cards may not have the highest rates or incentives, but they can help you create a credit history so that you can upgrade to a better card later.

It can be more difficult to get authorized for a credit card if you have terrible credit. While there are cards meant for people with less-than-perfect credit, it's a good idea to conduct some research ahead of time to increase your chances of approval.
To begin, review your credit report to ensure that any errors have been fixed or erased. It's also a good idea to look at your credit utilization ratio. Ideally, this should be less than 30%, so attempt to pay off any existing debt as soon as feasible.

While it is possible to apply for a new credit card after being turned down for one, it is not always a good idea. The initial application will have resulted in a hard pull on your credit file, which the provider will see on your next application.
When there have been repeated credit inquiries in a short period of time, lenders are often cautious to approve applications. So, restrict your applications to a minimum and do your research so that you only apply for credit cards for which you have a decent chance of being approved.

Interest rates on credit cards are usually determined by your risk profile. Your credit card company will evaluate your credit score and determine your interest rate appropriately. If you have a high credit card interest rate, it's probably because your credit score isn't as good as it could be.
This does not, however, imply that you have a low credit score.

Some credit cards are intended specifically for those with good credit since they come with a slew of incentives. So, even if you have a high score, it may be lower than ideal, as seen by the rate you receive.
If you do not comply with the card's terms and conditions, your credit card rate may rise. If you have missed or late payments on your account, some card issuers charge you an interest rate penalty.

By talking to the issuer of your credit cards, you may be able to negotiate a reduced interest rate. Negotiating with the card issuer of the account you've had the longest is a good strategy.

If you have a track record of on-time payments and a high credit score, you'll have a greater chance of negotiating a lower rate. Your card issuer is not obligated to agree to a lower rate, therefore there are no assurances.