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.
How to choose a credit card, step-by-step
- Check your credit score
- Pick the type of card that fits you best
- Decide which perks you want
- Consider card fees
- Look at the total package
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. 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.
Keep in mind, too, 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.
This means you should try to limit card applications to only those cards that offer decent approval odds based on your credit profile. Luckily you can often check if you prequalify for a card with a specific issuer at their website, or use a tool like CardMatch to search across multiple issuers for prequalified card offers that fit your credit profile.
2. Decide which kind of card 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.
Generally, though, the best card for you will fall into one of these categories. 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 off 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.
- 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, but 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, but are typically only available 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, credit-building cards should be seen mostly as steppingstones to better cards 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 for the first several months, which allows you to 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 typically don’t offer rewards or many perks either, as the intro APR is the big appeal.
To start, check out Bankrate’s balance transfer calculator to see how much you could save versus making payments on your existing card. If you can’t qualify for a balance transfer offer, consider a different credit card debt consolidation method or a dedicated low interest credit card.
Need to carry a balance? Get a low interest credit card
These cards are a good fit if you need to carry a balance long-term or finance expenses over time while minimizing interest charges. They 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 on the horizon and would like to pay them off over time while avoiding interests – such as a major home repair, move or renovation. Promotional APRs on new purchases typically last for 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 for multiple years, 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 set aside rewards for 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 ton in one specific category? Are you willing to track and enroll in bonus categories every quarter? Juggle multiple cards and use different ones for different purchases? Or would you rather just earn at the same rate on everything you buy?
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
- Cellphone insurance
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 sign-up 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 sign-up bonus? While annual fees are less than ideal, some cards offer initial sign-up 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.
Once you’ve considered these factors and determined which type of cards match your credit profile, goals and budget, it’s time to focus on specific cards and apply when you find a match.
To start, you can use Bankrate’s CardMatch tool to get a sense of your odds of approval across a number of different cards and issuers. This won’t affect your credit score and allows you to get a sense of the terrain before you dive in to specific cards that interest you.
Next, check out card reviews in the category you’re interested in. This will allow you to see how any specific cards you had in mind stack up as well as other top-rated cards that fit with your credit score, rewards or financing goals.
Finally, apply for your top choice. It’s best to stick to just one application at a time, as several hard inquiries in a short time can cause a big drop in your credit score. If your application is rejected, take a close look at the reason given by the issuer. You may have aimed too high based on your credit score, income or debt-to-income ratio.
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 0 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.
Nouri Zarrugh contributed additional reporting to this story.