It can seem daunting to try to choose the perfect credit card. While the basics are the same – you carry a piece of plastic that you can use to make purchases – it’s the details that make all the difference. Whether searching for another card or even your first, taking a few minutes to focus on your needs will help you pick the right card.
Check your credit score
Before you start, take a minute to check your credit score. Different credit cards demand different scores. There are some that offer credit to people with no credit history or those rebuilding their credit history. Others will only accept people with a very good to excellent score, say 700 – 850. Many times online sites that offer credit card ranking services provide a recommended credit score when they detail the “12 best travel cards” or “top rewards cards for new students”.
Types of credit cards
Cards run the gamut from no-annual fee cards that offer an average interest rate and nothing else to cards that charge $500 or $5,000 (yes, you read that right) for an annual fee and are only available by invitation.
Secured card. A secured card is where you deposit an amount of money equal to the credit limit; this protects the lender from losing any money – it secures the loan. For example, if you apply for a secured card with a $500 limit, you will have to send in $500 to open your account. These cards don’t offer a lot of bells and whistles but can help you create a credit history that will open the door to more types of cards. If you go this route, make sure the secured card reports your on-time payments to the credit bureaus.
Unsecured cards. This is what most people think of when they think of a credit card. You get a card because of your credit score and income, purchase items, and pay it monthly.
Balance transfer card. Some cards offer a 0% annual percentage rate (APR) for a limited time to new card holders. When the time period ends, your APR increases to that which was revealed in the original documentation. Many people use these when they have a balance on cards they already have. If you’re working to pay off a $8,000 credit card bill on which you’re paying 15.99% interest, moving it to a zero-interest card can be a smart move. Read the terms closely. Is zero interest on balance transfers only or on new purchases too? How much will they charge for the balance transfer? And perhaps most importantly, when does the zero-interest period expire?
Student cards. For students with a limited credit history, some companies offer student cards with no or a low annual fee and a low credit limit. Some offer rewards or cash back, and others may provide a statement credit if the student achieves a certain grade point average.
Rewards card. Many cards offer a cash or points back option based on the amount you spend. You also may receive an intro offer – a statement credit or cash back if you spend a certain amount in the first few months after you receive the card.
Cash-back cards. Cash-back credit cards usually come in one of two options: you can receive the same rate for all your purchases (say 1% – 2% on everything you buy), or a larger percentage (often up to 5%) on a specific category of purchases (groceries, restaurants, travel, home improvement, etc). Some people play card-roulette where they use only the card with the high percentage for the specific purchase – i.e. one card is paying 5% for groceries so they use that at the market, while they use another card paying 5% at the gas pump.
Points or mileage cards. Instead of receiving a percentage of your purchases in cash, you receive a number of points per purchase dollar amount. It’s really a different way of saying the same thing. For instance, if you have an airline’s card, you may earn 5 miles for every dollar spent on travel with that airline and 1.5 on all other purchases. Or you may have a flat 2 points per dollar card where you earn that rate on every purchase.
Intro offer. Some cards will offer a reward if you purchase a certain total amount in a set period of time. One recent example I found: earn a $200 bonus if you spend $500 in your first three months. Travel cards may give you 60,000 miles if you spend $2,000 in the first three months.
Many rewards cards come with no annual fee. However, some of the best require you to pay for the privilege. Make sure when you sign up that your rewards will more than cover the cost of the card. Also check to see if there’s any expiration on the rewards you receive.
Questions to ask yourself
With so many cards available, look at how you’ve used cards in the past and/or what you need from a specific card.
Do you regularly carry a balance? If you find yourself paying interest, don’t spend time looking at rewards cards with higher interest rates. Someone paying 15% per month shouldn’t worry about getting 2% back on purchases. Look for cards that offer the lowest interest rates. However, if you religiously pay your balance in full every month, find a rewards card or other beneficial card and don’t worry as much about the APR.
Are you headed to Europe? When we traveled to Europe we had two cards with no annual fees that also had no foreign exchange fees. Similarly, one of the cards offered overseas services if we got sick and provided insurance so we could skip the rental car insurance premium. If you have a specific need, find a card that will fill that need.
Do you want to build your child’s credit? If you want to add your child to your card as an authorized user, make sure the card doesn’t charge a fee for this service. Most don’t, but you don’t want to find the perfect card and then discover there’s a fee.
Is the card too complicated? I mentioned above that some cards have a set cash-back percentage while others have rotating 5% offers. I have cards with each of these offerings. While I always sign up for the rotating offer, I almost never think about it after I receive their reminder. I prefer knowing I’m earning 2% on every purchase rather than try to manage a handful of cards. But you may feel differently – give each type a shot and see what you are most comfortable with.
Research for best offers
Search online. Once you’ve decided on the type of card, start your search online. Many websites offer credit card comparisons where you can see the intro offer, required credit range, interest rate, and read up on the card’s rewards. They also link you to the application page. Know that these sites are being paid for this referral and that many companies don’t pay to sell their cards.
Make sure you scan the whole page when you’re visiting these sites. Sometimes the top half of the page shows cards where the website receives the highest payment with other perfectly good cards below. I found my travel card towards the bottom of the page on a random comparison website.
Don’t forget your bank or credit union. The financial institutions you work with already know you and may have pre-approved offers waiting for you when you log on. Both my credit card and banking websites show me offers for which I’m already approved when I log into my account.
Search for complaints. Before completing the application, do a general search for complaints about the card. With COVID, some card companies either reduced limits or canceled cards outright without informing their customers. You want to be aware of how these cards treat their customers before you become one.
Apply
Now that you’ve done your research and your credit is in good shape, it’s time to apply. If you want to reward the site where you researched the card, click through their link. Otherwise, go directly to the card’s webpage and apply there.
But first – remember to unfreeze your credit report. You will almost certainly be rejected for the card if they can’t view your credit history and score.
And a note for stay-at-home parents: you can use the income from your spouse or partner as your income on the application. They are asking for household income. Similarly, if you make $33,000 and your spouse makes $133,000, you can total both incomes when applying.
You should receive an instant decision when applying online. If you are rejected, you can contact the company to see if you can provide more information in the hopes that they will change their decision.
While there are many types of cards out there, try to focus only on what you need. Every time you open a new card your credit score takes a slight hit. It usually recovers quickly, but try to space out the applications if you need more than one new card.
Photo: Rawpixel