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- The best credit card for you depends on what you want out of the card.
- Always consider the credit card's ongoing APR when choosing your next card.
- You can choose from three typical categories: credit-building, cash back, points and miles, or zero-interest APR offer credit cards.
These days, credit card applicants have plenty of great options to choose from. But having so many options can make the decision quite difficult. What kinds of perks should you be looking for? Are annual fees worth it?
To simplify the process, we’ve laid out four steps to help you find the ideal credit card for your spending habits and your financial goals.
1. Check your credit score
The first step in finding the perfect credit card is checking your credit score. Most of the top rewards credit cards require at least good 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.
Even if you have great credit and your pick of the best cards available, don’t apply for too many cards at once. Any time you apply for a new credit card, you’ll incur a hard pull on your credit report, which will temporarily drop your credit score and remain on your credit report for two years. Additionally, several hard pulls in a short time could hurt your chances of approval for cards in the near future.
You can check your credit for free before you start your search and apply for a credit card. If your credit doesn’t look as good as you hoped, spend some time improving it before you apply for a credit card. For the most part, the most effective (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. Decide what you want a credit card to do for you
Once you know which types of cards you can qualify for, it’s time to start being choosy. What do you want a credit card to do for you? Generally, credit cards fall into one of the categories below.
Need to improve your credit score? Get a credit-building card
Responsibly using any credit card will improve your credit score, but some card issuers offer credit cards specifically designed for people with bad credit or limited credit history. They tend to be relatively easy to qualify for.
Look for credit-building cards that offer free FICO credit score access, credit limit increase reviews, and paths to upgrade to a better card, as these features are industry standards to help people improve their credit. Credit-building cards come in a few basic types, most notably secured credit cards, unsecured credit-building cards and student credit cards.
Secured cards work like traditional credit cards, with one major difference — they require a security deposit when you open the account. Your deposit typically becomes your credit limit and is refundable when you close the card or upgrade to an unsecured card.
Unsecured credit-building cards do not require a security deposit. With no deposit required, approving consumers for these cards is riskier for lenders. As a result, unsecured credit-building cards often carry higher fees and lower credit limits. For this reason, we recommend a secured credit card instead if you can afford the security deposit.
Need to pay off existing debt? Get a balance transfer credit card
Balance transfer credit cards are an ideal choice if you need to pay off credit card debt. You can transfer debt from one or more credit cards to a balance transfer card with a 0 percent intro APR offer and get a chance to chip away at your balance without interest charges. 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 good balance transfer card with 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.
Look for balance transfer credit cards that have at least 15 to 18 months of zero interest to give you a break from interest. Some cards have up to 21 months of 0 percent APR periods, which is the best you can find among zero-interest cards.
Need to finance a new purchase? Get a low-interest credit card
A low-interest credit card is a good fit if you need to 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 with a promotional APR on purchases will make the most sense if you have major expenses — such as a 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 21 months, after which any remaining balance is subject to the card’s regular APR.
Meanwhile, if you think you’ll carry a balance after the promotional APR period, or if you generally carry a balance from time to time, you should focus less on the introductory rate and more on the ongoing APR. Some of the best low-interest cards offer variable APR ranges that start around 17 percent. That might not sound low, but the average credit card APR is now more than 20.
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 people with good and better credit scores, rewards credit cards are best suited to people who don’t need to worry about building credit and want to earn cash back or points via sign-up bonuses and purchases.
You have several types of rewards credit cards to consider.
- Cash back cards typically earn a percentage back on your spending, which you can redeem for cash for a direct deposit or statement credit.
- Points-earning cards accumulate points instead of dollars as you spend. You generally have the option to redeem your points for cash back, travel, merchandise and more.
- Miles-earning cards rack up airline miles as you spend. You can redeem them for flights, usually with a particular brand or through the issuer’s travel portal.
The amount of rewards you earn on each purchase can vary, but the best cash back cards earn at least 2 percent cash back on all purchases or 5 percent back on bonus categories and 1 percent on everything else. If you’re comparing two cash back cards, consider your normal spending habits. Cards that earn elevated cash back rates on categories like groceries or gas are great for on-the-go families, while flat-rate cash back cards may be better for people who want a straightforward cash back strategy.
Meanwhile, rewards cards are great for people who want to bank points or miles for their next trip. Look for cards that offer higher points and miles rewards in categories you spend the most in — at least 3 points or miles per dollar. But like cash back cards, you can choose a straightforward travel card that has a lower 1 or 1.5 points or miles per dollar on all purchases.
3. Pick the card that offers the best value
Beyond the type of credit card, we recommend choosing a credit card with benefits and features that are relevant to you. Here are some perks to look for:
Secured and student credit cards
- Credit line increases: When considering a secured credit card, look for options that reward responsible usage with periodic credit line increases.
- Graduation: The ultimate goal of getting a secured credit card is to eventually have good enough credit to get an unsecured card. Some secured cards make this transition easier by allowing you to graduate to an unsecured card — no new application needed — when your credit improves.
Low interest and 0% APR credit cards
- Length of introductory 0 percent offer: No credit card offers 0 percent interest indefinitely, but you can find some top cards that offer 0 percent introductory periods that are up to 21 months long.
- No penalty APR or late fees: If you fall behind on your payments, some credit card companies will charge costly fees or a penalty APR. If you are concerned about your ability to pay your balance every month, consider looking for a card without these fees.
- Type of rewards: There are many types of credit card rewards, including cash back, airline miles and points. Cash back is simplest for most, but you may get more bang for your buck by redeeming points.
- Low required spending: Some rewards cards require you to meet a certain spending limit before qualifying for bonuses or special offers. If you are considering a rewards card and want to earn its sign-up bonus, for instance, take note of the spending requirement to make sure you will get the best value out of your card.
- No (or low) annual fee: Rewards cards offer the best perks, but many have annual fees. The rewards will often outweigh the burden of an annual fee, but there are also plenty of cards available with no yearly fee.
4. Familiarize yourself with interest rates and fees
Credit card issuers make money through interest and fees. Federal law 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 on credit cards can vary significantly. Some cards may offer interest rates below the current averxage, while others may charge up to 36 percent. A card’s APR should be a defining factor in your decision-making process, especially if you think you may have to carry a balance.
Different types of credit cards charge various fees. Some of the most common you may encounter include:
- Annual fee: Many credit cards come with annual fees that typically range anywhere from $95 to $550 and higher. Some issuers will also waive their annual fees in the first year of card ownership. And sometimes you can get that fee waived just by asking.
- 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’ll also be charged interest on a cash advance right 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 credit cards that don’t charge foreign transaction fees.
The bottom line
With so many different types of credit cards available, it can be hard to find the right one for your needs. It pays to do a little research and then compare a few cards to find the best fit for you. Once you decide what features and benefits are important to you, the decision becomes a bit easier.