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How To Choose a Credit Card: Step-by-Step Guide
Learning how to choose a credit card that’s suited for your needs is important when going out to shop for one. Depending on your financial goals, some cards are more suited for you than others.
There are credit cards that can help you build or repair your credit if your credit history is not that great. If you travel a lot perhaps you want to focus on rewards credit cards that give you free miles, and other perks like lounge access, discounts on hotel rooms, and more.
If you’re looking to save money for a big purchase in the future, maybe you need a 0% APR credit card, so be on the lookout for one of those
So as you can see, there are many types of credit cards that you can choose from, and sometimes it might get a bit confusing to know which one is the best for you.
Well, in this article, we’re going to go over a few details and tips on how to choose a credit card so that you can go out there and start spending (responsibly of course).
1. Start by checking your credit score
Before you start looking for a credit card, you should first take a look at your credit score. It’s important to know your credit score because it’s one of the most important things that banks will look at when they will issue you a new credit card.
Some cards are only given out to customers that have good or excellent credit scores, so if you want to get a premium rewards credit card then you should work on your score before you apply.
Don’t worry though, there are credit cards for bad credit scores too, you just need to make sure that you apply for cards that apply to your score.
Sometimes even if you have a good credit score, your application might still get denied. That’s because financial institutions will also look at your income and monthly house payments and not just your credit score alone when determining if they should issue you a credit card.
Don’t know your credit score? No worries, go to our guide and see how to check yours out.
If you don’t get a good score, you should try and improve it by paying off some of your late bills before applying for a card.
2. Decide which type of credit card is best for you
Cards that help you improve your credit
If you have checked your credit score and it’s not that great, then you might want to focus on getting a credit card that could help you to build or improve your credit.
These credit-building cards are perfect for repairing or building your credit if you pay your balances on time and use them responsibly.
Since they are made specifically for those who don’t have a very good credit history, they are pretty easy to get.
Secured cards are the most popular for building credit, which can be a great choice for people who have no credit history or if they have bad credit. All you have to do is to fill out an application and pay the security deposit, which most of the time is about $200.
After that, you will have a credit limit that’s equal to the amount that you have deposited.
So if you deposited $200, it now means you can get up to $200 in credit, and every time you use the credit card and pay off your balance on time, you get to improve your credit score.
If you do some shopping around you might even find secured credit cards that also offer cashback, which will help save you some extra money at different establishments.
Cards that save you money on interest & balance transfers
If your focus is to get out of debt or plan to save money to finance new purchases, then you should look into a credit card that has no interest in purchases or transfers.
Many credit cards of this type will usually offer a 0% annual percentage rate (APR) for the first 12 or 18 months <ref>Experian</ref>, and then they will go up to either a variable APR or a fixed one.
The benefit of a low or zero interest rate credit card is that you will save a lot more money than for example if you were to put your funds on a high-interest credit card, where you will be spending quite a lot in interest charges.
So if you’re planning for a big purchase soon, then you should think about saving your money in a 0% APR card to avoid paying additional interest while repaying your debt. The goal is to try and pay off your debt before the interest-free period ends.
You will need however a good or excellent credit score to get some of the best %0 APR credit cards.
Cards that earn rewards.
If you have a good to excellent credit score and no debt, you could try to get a rewards credit card. Sure it’s not that easy to get one of these, but the benefits of getting a rewards credit card will make it all worthwhile.
These cards will help you lower the overall costs of your purchases and even save you money when you travel (by redeeming miles).
There are two types of reward cards:
- Cashback Cards – Where you get to earn back a percentage of the amount you spent buying certain items
- Travel Cards – If you travel frequently you might want to get a card that offers you miles or points to help lower your travel expenses (airline tickets, hotel rooms, free checked bags, etc.)
So depending on your spending habits, you should think about which rewards credit card is more suited for you while trying to maximize the full potential of your rewards.
If your credit is not good or excellent, you should try and work on that first before applying for one of these cards, to have more chances of getting approved.
3. Figure out some of the benefits you need
With a credit card type in mind, you should now focus on some of the benefits that you might need from it.
So here are a few keynotes to have in mind when you choose a credit card:
If you pick a credit card to build credit – Search for cards that will actually report your balance payments to the credit bureaus.
Keep in mind the minimum deposits and annual fees – Some cards for example secured ones will require an initial deposit, so try to get the lowest security deposit that is possible. Also if your credit rating is bad, some might even have annual fees.
The 0% APR won’t last forever – There usually is a time limit for 0% APR, so keep that in mind and pay off your debt before that time runs off. If you want to save on not paying interest of course.
Maximize your rewards credit card – If you’re going for a rewards card, you should make sure to pick one that you can fully benefit from and try to maximize its potential as much as possible.
4. Compare your credit card options
As with any financial decision, you want to make sure that you do some research before you pick a credit card. So go ahead and take the time to compare some of the credit cards that apply to your score, and see how they stack against each other.
If you see a card that has an extra benefit more than others, make sure to put that down on your list, and after that pick the one that’s the best for you.
Be on the lookout for cards with:
- Low-interest or 0% APR – essential to have as low-interest as possible or a long-term 0% APR
- Rewards that don’t have an expiration date – important for rewards cards
- The credit limit is increased automatically – a good thing to look out for when shopping for credit-building cards.
5. Don’t forget about the fees
Of course, you should not overlook the fees. It’s not unusual to see cards on the market with annual fees that are $500 or more. Granted, those are more for reward credit cards that offer perks that are more valuable than the annual fee, such as priority airport lounge membership, or travel credit.
If your credit is not that great, you should also expect to see some fees, but of course not as high as the reward cards. You might also need to factor in the initial deposit for secured credit cards.
Balance transfer cards generally don’t have annual fees, so ideally you should shop around to get one with no fees.
Some general rewards credit cards have no annual fees, but they require you to have good to excellent credit.
How to choose a credit card, step-by-step guide:
- Check your credit score first and credit history to see what cards you should apply for
- Figure out which credit card types suit your needs
- Compare cards and shop around to see what extra benefits you might get
- Watch for the fees
- Finally, choose a credit card that offers you the most value
As you can see the process to choose a credit card can be pretty straightforward. The most important thing you should focus on is your credit score and history though.
Because that will decide which type of cards you could apply to get. Some of the cards will require you to have good to excellent credit, so if you want to enjoy some of the perks of those cards (free miles, 0% interest rate, etc), then you should try and improve your credit as much as possible.
After you know your score, even if it’s not that great, you could go ahead and shop around and decide on a credit card that’s good for your needs.
There are many options to choose from, so take your time to research the cards properly and see what advantages some of them bring vs the others.
You should then focus on getting one card at first, ideally one that could bring you the most amount of value. Later down the road, you can even sign up for multiple credit cards, based on your financial goals of course.