How to pick the right credit card for you

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Picking the right credit card for your needs is no easy feat. The sheer number of options available can make finding the perfect credit card for your lifestyle feel like searching for a needle in a haystack.

Here are four steps to help you find the ideal credit card for your lifestyle and goals.

How to choose a credit card

  1. Check your credit score
  2. Pick the type of card that fits you best
  3. Decide which perks you want
  4. Consider interest rates and fees

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 limited credit history.

Before you apply for a credit card, it helps to know where you stand. Find out what your credit score is so you can know which type of card you should apply for.

If your credit doesn’t look as good as you hoped, it might make 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.

Keep in mind that any time you apply for a new credit card, you’ll face a hard pull of your credit report, which will temporarily drop your credit score and remain on your credit report for two years. Having several hard pulls in a short time could hurt your chances of getting approved for cards in the near future.

You can often check if you prequalify for a card with a specific issuer on its website or use a tool like CardMatch to search across multiple issuers for prequalified card offers that fit your credit profile. While it’s not a guarantee of approval, prequalification should give you a sense of your odds of approval and some reassurance before submitting your application.

2. Pick the type of card that fits you best

Once you have a better sense of where you stand from a credit perspective, you can shift your focus to which type of card makes sense for you. As you may already have noticed, there are a ton of card options to choose from, each with pros and cons depending on your goals, budget and credit standing.

Before deciding on what cards to apply for, you can check out card reviews in the category you’re interested in to see how they fit with your credit score, rewards or financing goals.

Generally, the best card for you will fall into one of the categories below. Ask yourself which makes the most sense for you, given your credit history and future plans.

Need to build credit? Get a credit-building credit card

Designed for people with bad credit or limited credit history, credit-building cards can help you build or repair your credit if you use them responsibly. Among other things, that means paying your balances on time and keeping your credit utilization low. And since they’re designed for those with a less-than-ideal credit history, they tend to be relatively easy to qualify for.

Credit-building cards come in a few basic types, most notably secured credit cards, unsecured credit-building cards and student cards.

Secured cards work like traditional credit cards, with one major difference — they require you to put down a security deposit when you become a cardholder. Your deposit is typically equal to your credit limit and is refundable when you close the card or upgrade to an unsecured card.

Unsecured credit-building cards, as the name implies, do not require a security deposit. These cards are geared toward consumers with poor credit. With no deposit required, approving people for these cards is riskier to lenders. As a result, unsecured credit-building cards often carry higher fees and lower credit limits.

Student cards can be either secured or unsecured and are typically available only to current students. These cards tend to carry lower fees than general credit-building cards and sometimes come with student-centric perks.

Whichever route you take to build credit, a credit-building card should be used as a stepping stone toward a better credit card down the line.

Need to pay off debt? Get a balance transfer credit card

Balance transfer cards are ideal if you need to pay off debt. You can transfer debt from one or more credit cards to a balance transfer card with a lower APR and get a chance to chip away at your balance and save on interest charges.

These cards typically offer either a lower-than-average or 0 percent introductory APR on balance transfers for at least the first several months and often more than a year. During this period, you can contribute more money toward your principal balance and less toward interest charges. You’ll just need to be sure to have a payoff plan in place before you start, as any balance that remains at the end of your intro APR period will be subject to the card’s regular APR.

If your current credit card has a high interest rate, a low or 0 percent introductory APR can be a lifesaver as you work to pay down your debt efficiently and at a lower cost, but you’ll typically need good to excellent credit to qualify. These cards usually don’t offer rewards or many perks either, as the intro APR is the primary benefit.

Check out Bankrate’s balance transfer calculator to see how much you could save versus making payments on your existing card.

Need to carry a balance? Get a low-interest credit card

A low-interest credit card is a good fit if you need to carry a balance long-term or finance expenses over time while minimizing interest charges. These cards tend to come in two major forms, offering either a lower ongoing rate than the average credit card APR or a 0 percent introductory APR on new purchases.

A card that comes with a promotional APR on purchases will make the most sense if you have major expenses — such as a major home repair, move or renovation — on the horizon and would like to pay them off over time while avoiding interest. Promotional APRs on new purchases typically last 12 to 18 months, after which any remaining balance is subject to the card’s regular APR.

Meanwhile, if you plan to carry a balance long term, you should focus less on the introductory rate and more on the ongoing APR. Some low-interest cards can offer rates below 10 percent, well below what you’ll find on the typical credit card.

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

Ready to earn points, miles or cash back? Get a rewards credit card

Typically reserved for those with good to excellent credit, rewards credit cards are best suited to cardholders who are already in good shape from a credit perspective and want to earn cash back or points via sign-up bonuses and purchases. If you’re still working on your credit or need to tackle debt, you may need to wait for rewards when you’re in a better place financially.

Along with offering bonuses when you spend a certain amount in a given time frame, cash back cards typically earn a percentage back on your spending in the form of a direct deposit or statement credit, while other rewards cards earn points or miles that can be redeemed for cash back, travel, merchandise and more.

These types of cards come in a few different forms, with some offering a flat rewards rate on all of your spending and others offering bonus rewards in certain categories of spending, like groceries or dining.

To decide which is the best fit for you, think about your spending habits and how much work you’re willing to put into maximizing your rewards: Do you spend a lot in one specific category? Are you willing to track and enroll in bonus categories every quarter? What about juggling multiple cards and using different ones for different purchases? Or would you rather just earn at the same rate on everything you buy?

3. Decide which perks you want

Now that you know your credit score and which type of card would help you meet your goals, it’s important to think about 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
  • Cellphone insurance

4. Consider interest rates and fees

Credit card issuers make money through interest and fees. The Fair Credit and Charge Card Disclosure Act requires that all credit cards disclose their interest rate fees in advance, so it’s important to research these added costs before applying for a new card.

Interest rates

Interest rates on credit cards can vary significantly. While the average credit card interest rate is currently hovering above 16 percent. Some cards may offer interest rates in the single digits, while others may charge up to 36 percent. The interest rate associated with your credit card should be a defining factor in your decision-making process, especially if you think you may have to carry a balance.

Fees

Different types of credit cards charge different fees. Some of the most common fees you may encounter include:

  • Annual fee: Many credit cards come with annual fees that typically range anywhere from $95 to $500 or more. Most often, credit cards with high annual fees will be top-tier rewards cards. However, if you are looking for a credit card without an annual fee, there are options available. Some issuers of prime credit cards will also waive their annual fees in the first year of card ownership, so keep an eye out for special offers.
  • Balance transfer fee: If you already have a credit card and you’re struggling to pay off high-interest credit card debt, a balance transfer card could be a good option for you. Balance transfer fees are typically 3 percent to 5 percent of your transfer amount, often with a minimum of $5 to $10.
  • Late payment fee: If you pay your credit card statement late, you could be charged a late payment fee. These fees differ depending on the issuer and the number of times you have paid your balance late.
  • Cash advance fee: A cash advance is when you take money out of an ATM using your credit card. Cash advances should be avoided whenever possible. Fees associated with cash advances can be high — typically 3 percent to 5 percent of the amount withdrawn. You also generally start paying interest on cash advances straight away, often at a higher rate than your regular APR.
  • Foreign transaction fee: When you use your credit card outside of the U.S. you may be charged a foreign transaction fee. These fees typically cost around 3 percent per transaction. If you’re an avid traveler, consider looking at credit cards that don’t charge foreign transaction fees.

The bottom line

Thanks to the many credit card options on the market, it can be hard to find the right card to meet your personal and financial needs. Putting in the work and researching the best fit for you is a key step to take.

Once you decide what credit card features and benefits are important to you, it will be easier to narrow down your search for the right card.

Written by
Meredith Hoffman
Credit Cards Reporter
Meredith Hoffman is a personal finance writer covering credit card news and advice at Bankrate. She is originally from Columbia, S.C., and received her bachelor's degree from the Univ. of North Carolina at Wilmington. Before joining Bankrate in October 2019, Meredith worked as the news editor of Wilmington’s local newspaper, The Seahawk.
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