How to pick the right credit card in 5 easy steps

5 min read
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Picking the right credit card for your needs isn’t an easy feat, and that’s mostly because there are so many cards available right now. The sheer number of rewards credit cards alone available today is enough to blow anyone’s mind. It’s no wonder many consumers simply go with a card their friend recommends or one they randomly stumble upon while searching the web.

If you want to pick the right card for your needs, however, you’ll have to do more digging than that. Some cards are best for different types of consumers and your personal credit profile might also limit the cards you can qualify for.

Instead of relying on the suggestions of friends or direct mail advertisements to decide on your next card, take the time to uncover what you really need. These five steps can help you wind up with the ideal credit card for your lifestyle and goals.

1. Check your credit score

Most of the top rewards credit cards require you to have good or excellent credit, but there are also cards for people with just “fair” credit, and even cards for consumers who have no credit or a limited credit history.

Before you apply for a credit card, it helps to know where you stand. Take the time to find out your credit score so you can know which type of card you should apply for.

These general rules will apply based on your FICO score:

  • “poor” (579 or lower) or “fair” (580 to 669): you may need to apply for a credit card for bad credit or even a secured credit card.
  • “good” (670 to 739): you have a shot at qualifying for the best credit card offers available today, but you may not qualify for premium cards.
  • “very good” (740 to 799) or “excellent” (800 and up): you should be able to qualify for almost any credit card you apply for.

If your credit doesn’t look as good as you hoped, it also makes sense to spend some time improving it before you apply for a credit card. For the most part, the best (and easiest) ways to improve credit include paying all your bills early or on time and paying down debt to lower your credit utilization.

2. Define your goals

Another factor to consider is your final goal. Why do you want a new credit card in the first place?

This is ultimately one of the most important questions to ask since the reason you want a credit card will determine the type of credit card that works best for your needs. For example:

3. Decide which cardholder benefits you need the most

Now that you know your credit score and which type of card would help you meet your goals, it’s important to think over which benefits you want the most. This part can be somewhat tricky since it’s hard to find a card that has every perk you want, but you can at least figure out which cardholder benefits are most important to you.

Some common cardholder perks to think about include:

  • Primary auto rental coverage you can use in place of your own insurance when you rent a car
  • Purchase protection that can reimburse you if covered items are damaged or stolen
  • Extended warranties that boost coverage for items with a manufacturer’s warranty
  • Coverage for lost or delayed baggage
  • Travel accident insurance
  • Trip cancellation/interruption insurance
  • Free FICO score on your monthly statement
  • Cell phone insurance

These are the most popular benefits credit cards offer, but there are plenty of others. Make sure you keep these perks in mind as you move through the next steps.

4. Consider card fees

Next up, ask yourself whether you’re comfortable paying an annual fee on a credit card. There’s no right or wrong answer here, but it can definitely help to think of these fees in terms of the value you get in return.

As an example, the Chase Sapphire Reserve comes with a $550 annual fee but it offers a $300 travel credit each year, a Priority Pass Select airport lounge membership, a credit toward Global Entry or TSA Precheck and a big initial signup bonus. Considering you’ll get $300 annually in travel credits and the fact that a Priority Pass airport lounge membership with unlimited visits normally starts at $429 per year on its own, this card is an excellent deal for a frequent traveler despite its annual fee.

Some other cards charge much lower fees, but their first-year welcome bonuses and cardholder perks more than make up for it. Here are some questions to ask as you consider whether annual fees are worth it:

  • Is your credit either good or excellent? If not, you may have to pay an annual fee for a credit card for bad credit or an upfront security deposit in order to get a secured credit card.
  • Do you want important travel perks? Most travel credit cards that offer annual travel credits, airport lounge membership, or elite hotel status require an annual fee.
  • Can you earn an attractive signup bonus? While annual fees are less than ideal, some cards offer initial signup bonuses that can more than make up for the fee for the first few years.
  • Are you applying for a balance transfer card to consolidate debt? Most balance transfer cards don’t charge an annual fee, so you should avoid paying one if you can.
  • Do you hate fees and refuse to pay them? If your credit is good or excellent, you should consider cash-back credit cards or general rewards credit cards with no annual fee. 

5. Choose a card that offers the best total package

At this point, you should be aware of quite a few things about yourself and the card you want. For example, you should know:

  • Your credit score, and presumably the type of credit card you can actually qualify for
  • The type of card you should apply for based on your goals
  • Cardholder perks you want the most
  • How comfortable you are with fees

From here, you’ll look for cards that you can qualify for that offer what you want in terms of rewards and cardholder benefits. If an annual fee is charged, you should feel confident you’ll get more than enough value in return to make it worth it.

Next steps

Once you’ve found a credit card that checks off all your boxes, your next best step is using your card to its full advantage. For the most part, this means using your card only for purchases you planned to make and paying your balance off in full each month. This is especially crucial if you’re using a credit card to build credit. If you run up your balance and max out your new card, you’re also increasing your credit utilization, which can hurt your score in the long-term.

Also remember that credit card interest rates can be exorbitant, and that paying interest on your purchases will wipe out any rewards you earn. Really, if you need to carry a balance, you might be better off with a personal loan instead.

If you took out a balance transfer card to consolidate debt, spend time transferring your balances over so you can benefit from the zero percent introductory APR as soon as you can. From there, pay off as much debt as you can during your card’s interest-free period. With enough discipline, you have a chance to pay off a big chunk of your debt — or even all your debt — before your card’s introductory offer ends.