Choosing a credit card is more complicated than many people realize. If you’ve had credit cards in the past, you might be aware that choosing a credit card involves the consideration of several factors. However, those who’ve never had a credit card might not realize that there’s more to it than picking a card with a pretty design or signing up for the first offer that comes in the mail. There are details you need to consider that affect your financial future.
If you’re in the market for your first credit card or a new credit card, choosing a credit card is easier when you consider these tips. Apply them where necessary and make sure you take your time deciding which card is right for you and your family. Not taking the time to choose the right card can harm your financial life, including negatively affecting your credit score or your debt to income ratio. The card you choose right now might affect your ability to buy a home, take out a loan, or even buy a car. Here’s what you need to know about choosing a credit card that’s right for you.
Why Is It Important to Choose the Right Credit Card?
It’s important to choose a credit card that works for you. Why? It’s because your finances are one of the most important aspects of your life. This credit card is going to affect your credit score. It’s going to affect your debt, your income, and your ability to make financial decisions in the future. This credit card could even be the reason you do not qualify for a loan to buy a home in the future.
You need a card that serves you in the ways you need it to. You need one that’s not too expensive, one that works where you travel and where you work, and one that benefits you rather than takes away from you. The right card is not one you have to pay for. It’s one that pays for itself or doesn’t cost you anything. It’s a card you can use anywhere you go, and it’s one that gives you something in return.
Different Types of Credit Cards
No two credit cards are created equal. It’s essential you know the differences between the different cards, and what each one means. Choosing a credit card is easier when you know what kind of cards are available to you before you begin filling out applications.
These are cards that are issued by stores and retailers. Store-branded cards often come in two forms. One is a store-only card you cannot use anywhere but the store. The secondary store-branded card offer might have a Visa or Mastercard logo on it. You earn more points and rewards when you use it at the store, but you can use it anywhere you want.
These are airline-branded cards you can use anywhere, but they are best used with an airline. You get the most points and rewards when you use your airline card with the airline and it’s partner brands.
These are for guests of specific hotels. You can use these cards anywhere Visa or Mastercard is accepted, but you earn the most points and benefits when you use them with the hotel that issues the card.
These are cards that often have a lower credit limit. They are for students, and you cannot have one if you are not a student.
Secure Credit Cards
These are cards designed for people with no credit or bad credit. You get a credit line, but it’s determined by the amount of money you put down as a deposit. If you have a secure card with a $300 credit line, you have to give the card company $300 before you can use the card. Anything you charge must be paid off. You can graduate to an unsecured card and get your deposit back after at least one year of on-time payments.
Bad Credit Cards
These have high interest rates, low credit limits, and they offer few to no perks. These are not cards you want unless you have no choice. This card is expensive to carry if you do not pay it off in full each month.
If you own a business, you can get a business credit card. This card is meant for business use only, and it helps you during tax time by categorizing your spending habits and making reconciliation that much easier.
Balance Transfer Cards
These are cards that are meant for you to transfer balances. They cater to those who want to take the debt from another card and pay little to no interest for a certain time to help pay off their debts.
These are for people who do not pay off their balances on a monthly basis. This is the card you want if you carry a balance so you can keep it as affordable as possible.
5 Tips for Choosing a Credit Card
You should take these five tips into consideration when choosing a credit card. These are designed for consumers in nearly every situation, with any kind of credit card need. These tips are important for you as well as every other person in the country looking for the right credit card.
Choose A Low Interest Rate Card
If you think that the interest rate doesn’t matter because you will pay your card balance in full each month, you are only partially correct. While the best financial decision you can make every month is to pay your card balance in full, it’s also vital that you plan for the unexpected. Choose a card with a low interest rate in case you ever run into a financial emergency and cannot pay your balance in full. Job loss, medical emergencies, income reduction, death, and other problems can cause you to leave a balance unpaid.
Check Fees Before You Apply
If you don’t plan on using your credit card for cash advances and you aren’t making late payments, you don’t need to worry so much about fees. However, it’s important to read the fine print so that you know what fees to expect. For example, if you travel internationally on a regular basis, you need to know that you might pay a foreign transaction fee, and it can add up significantly. You want a card that you can use in another country without any foreign transaction fees to save you money.
Choose a Card With No or Low Annual Fees
When choosing a credit card, you want to choose one without an annual fee. While many cards do charge an annual fee, you should look into what means the most to you. Do you mind paying a $99 annual fee if the card company waives the fee for one year and you will earn enough cash back or rewards points to make up for the fee otherwise? Pay attention to the annual fee and know that you have other options if you’d like to make your card work for you.
Choose Rewards That Benefit You
Choosing a credit card means looking at what it has to offer you. Do you like to have cash back or do you prefer to have points for airlines or hotels? Whatever works best for you is highly personal. Someone who travels often and is brand-loyal to a particular hotel or airline will want a credit card that works to earn miles or hotel points so they can redeem them for upgrades, free nights, free miles, and other perks of being a loyal reward member.
If you prefer to earn cash back, you want to look at the card and the cash back you can earn. For example, if you want a card that offers 6 percent cash back on purchases, you aren’t going to consider a card with a 1.5 percent cash back reward. However, you need to read the fine print. Some high cash back percentage earnings have low caps or are only good for certain purchases. Meanwhile, that lower percentage cash back offer might be good for all purchases you make.
Spending $20,000 per year on your credit card with a 1.5 percent cash back offer can earn you $300 cash back all year. If you spend the same $20,000 on a card that earns you 6 percent cash back on all purchases up to $1,500 and 1 percent cash back on all other purchases, you’re only earning $275 all year. Read the fine print, do the math, and see what works for you.
Be Wary of Low Introductory Rates
While you want a card with a low rate, do not let a low initial rate fool you. Choosing a credit card with a low or no introductory rate offer is nice, but forgetting to check to see what the rate will be once that introductory period over is a mistake. It might be higher than you want to pay. If you really want to pay nothing for six months to a year in interest, be ready to apply for a new card with low balance transfer rates once that introductory period is up.
Choosing a credit card should be simpler now that you know what you can get, how it affects you, and what works for your personal spending habits. Remember, if you choose the wrong card, it could cause you to go further into debt and potentially fail to qualify for things like a mortgage or a loan. Do not let your credit suffer because you didn’t do your homework to help you choose the right credit card.