Credit cards are treated much more seriously these days. In fact, credit card application rates are now below 50% for those that receive offers.
If you’re someone who hasn’t had any or a lot of experience with them, it can be overwhelming.
Should you get another credit card? A secured credit card? How will it affect my credit?
These are questions everyone asks at some point, as it’s not exactly common knowledge.
Learning how to choose a credit card can set you up for a lot of great benefits. On the other hand, if you just go with the first offer in front of you, it could spell trouble later.
For help choosing a credit card, this guide will show you ropes.
We’ll cover the basics of applying, using, and benefiting from credit cards. Whether it’s your first application or your third, this should help you decide what to get.
Why Do You Want the Card?
You have to ask yourself what is your primary reason for getting a credit card. Being loose with something as important as your credit is ill-advised. Do you fall under one of these major categories?
Most people have damaged credit or not enough credit to do anything with it. Getting a credit card to build credit is all about responsibility.
Crawl before you walk is the motto here. That means getting a credit card and using it just a little at a time to build a good history.
Investing in a Major Purchase
You should only fall under this category if you already have good credit and a solid history. Getting a new credit card to increase your available budget to make a big purchase can be a gamble. If you don’t have the means to fund your next big purchase in cash, credit can provide a great opportunity.
The big risk here is potentially drowning in credit card bills with high interest rates. Juggling credit cards is not something you should be doing for any long periods of time. Make sure your income is strong enough to pay off your purchase quickly.
Taking Advantage of Rewards
One of the biggest draws to credit cards, besides access to major purchases, are the rewards. Frequent fliers without a credit card are literally missing out on hundreds of dollars in travel fares. Cashback offers may not seem like a lot at first, but that 1.5-2% adds up.
Rewards are the gifts that you don’t count on, but love to see at the end of a tough month/year.
Those with Credit Card Debt
Getting a credit card with already existing may seem counter-productive, but it can be smart. If you can find a credit card with 0% APR, it can help alleviate the pressure of payments. Once credit card debt starts to interfere with your ability to pay your other bills, it can be suffocating.
Getting a new card that you can increase the ceiling of available capital can help a lot.
Important Credit Card Variables
When applying for a credit card, you should be looking at five main components of the contract.
1. The Annual Fee
This is a non-negotiable fee that is charged every year for the use of the card. It doesn’t go away if you pay your bills on time. Usually, the cards with the most rewards have the highest fees.
We don’t recommend getting a card with an annual fee unless you can advantage of the rewards (more on that below). Also, some credit cards come with introductory promos that don’t charge a fee. This is usually just for the first year, so read carefully.
Interest rates are often overlooked because everyone thinks they will never have problems paying their bill. Most credit card APRs are 25-30%, but some can go down to 11% for good credit scores.
Like the annual fee, there are also introductory offers for 0% interest. Again, these are aimed at people who want to make a big purchase and plan on paying it off before the promo is up. Otherwise, the interest rates can quickly bury even the most responsible spenders.
It’s worth mentioning that rewards can fall under a wide range of categories. Do you research on which types of rewards would most benefit you. There are some really unexpected rewards cards out there, like the Hello Kitty Visa Platinum Rewards card.
4. Late Fees, Transfers, and Advances
Another overlooked set of numbers on credit card applications. Credit card companies often charge hefty fees for being late on your bill ($30-35). That number goes up depending on how long it takes for you to pay it.
If you want to transfer your balance to another card, expect to pay a percentage-based fee. That can be as little as 3 percent and up to 5 percent of the transfer. If you’re juggling credit cards, this small leak can turn into a stream of lost money.
Other fees include cash advance fees, “overdraft” fees and foreign transaction fees. Beware when traveling internationally, as those fees can be up to 3% of every purchase. Can you say “Ouch!” in French? Aie!
Credit Limit Terms
Credit limits will vary based on credit scores, of course. If you don’t have any credit or bad credit, you may need to go the secured route. Secured cards essentially allow you to set your credit limit by the amount you deposit.
This deposit is held for the specified amount of time or until the account is closed. Usually, it takes about six months of on-time payments to get your deposit back. This is also followed by a credit limit increase.
Building Credit Tips
Building credit is something everyone should be doing, no matter their score. There’s no such thing as too much credit. For first-timers, building credit can seem like an elusive concept. You can actually take control of your credit score.
The most obvious way to start improving credit before even getting a card is removing debts. This can mean either two things: you attempt to pay them off or you get them erased. Debts older than seven years can legally be deleted off your file.
That includes items like late payments, debt collections, charged-off accounts, and Chapter 13 bankruptcy. Now, that doesn’t mean these debts can no longer be collected from you. This is simply about debts that are impacting your credit score.
Pay Bills On-Time & in Full
Sounds obvious, but having a history of full credit card payments that are never late is very good. Outside of the length of the accounts themselves, making consistent on-time payments grows your credit fast.
Save for Large Purchases
Don’t use a credit card to bail you out or enable a splurge that you probably can’t afford. Instead start saving for large purchases early and plan your exit strategy. Meaning, don’t leave yourself counting every last cent when it comes to paying off that purchase before your 0% APR offer expires.
How to Choose a Credit Card Deal
Signing up for your first credit card or your third is going to come down to long-term gains. Even if you’re just grabbing one for a single purchase, look at all the rewards and deals on the table. For those who don’t have the greatest credit, but want more rewards: be careful.
It’s easy to get yourself stuck in a cycle of more spending to get more rewards. Racking up those airline rewards points is very addictive and can lead to more debt.
Also, pay close attention to all these sign-up bonuses on the table. A lot of them are tied to unrealistic goals for most spenders. Can you see yourself spending thousands in the first three months to collect that $150 bonus?
Just be honest with yourself about how much you can afford to pay off every month. This basic rule of credit card usage applies to any income or status. A few slip-ups and the interest rates you pay will negate even the most generous of rewards.
Our Picks for Top Rewards Cards
Now that we’ve covered the fundamentals of how to choose a credit card, it’s time to start shopping. There are a number of great offers out there, of course.
For the most part, having “good” credit is the sweet spot. Excellent credit card owners don’t get exponentially great rewards.
Of course, excellent credit perks extend beyond simple credit card cashback deals and airline points. To keep things consistent, we will only cover card rewards for those with “fair” credit or greater. These are some of the best credit cards for rewards and bonuses.
Capital One Quicksilver
This card will forever be tied to Samuel Jackson’s voice in our heads, thanks to his spokesmanship. We also like the rewards on this card, both for new accounts and established. You get a $150 sign-up bonus for only $500 in purchases within the first three months.
That’s a very generous bonus, we think. It’s the equivalent of going out to eat and a few concerts for most people. The Quicksilver card has an unlimited 1.5% cashback reward on every purchase.
This is a no-nonsense card that won’t dangle rewards over you and make you jump through hoops to get them. Your cash rewards never expire, so this is an ideal card for building long-term credit on a card you’ll want to use.
The Best Travel Rewards Cards
The Capital One Quicksilver card wins our top pick for cashback rewards. When it comes to travel rewards cards, there’s a few winners we can list. We want to preface this by saying that a lot of travel rewards bonuses can be hard to earn.
The average travel bonus offer is going to have you spending $3,000 within the first three months to earn 50-70,000 points. That’s roughly $1,000 of airfare on average. Pretty sweet bonus, if you can afford it.
Now that we have that out of the way, here’s our top picks:
Chase Sapphire Preferred
You’re looking at 50,000 points after you spend $4,000 in the first three months. Obviously, one of the higher ends of the bonus spectrum, but worth it.
Chase’s airline loyal program is one of the most popular. Points easily transfer over to various airline perks and discounts.
You get roughly a penny per point outside of the initial bonus offer. Don’t mix this card up with their “Reserved” Sapphire card.
There’s a $450 annual fee mixed in there with a useless $300 annual travel credit. Great way to cause confusion when managing finances.
Bank of America Travel Rewards
For something a little more feasible for those on a lower budget, you can’t go wrong with this one. BoA has their own travel credit card for their customers that works via statement credits. Unlike other cards, like the Chase Sapphire card, you don’t use a portal website to redeem points to the airlines.
This card simple racks up the travel points or miles and allows you to convert them back into your balance. This makes shopping around much easier as you don’t need to worry about various airline offers. Not all airlines handle points the same way.
This card also comes with a 25,000 points bonus for spending $2,500 in the first three months. No annual fees and a higher rewards points rate than most companies.
Good Credit Is Smart Money
Credit cards are only as useful as the owner’s money management capabilities. If you’re living life by the seat of your pants, credit cards are just another variable. If you’re thrifty, plan well, and track finances closely, a credit card is a great tool.
Knowing how to choose a credit card is all about planning for the future. Credit cards are often discouraged for young adults. This is an unfair assumption that if they mess up their credit it will ruin their lives.
Credit cards should be encouraged to be used as soon as possible. Teaching smart money usage is the key to success later in life.
In fact, there are student credit cards that do just that. Use our site as a reference for any questions you may have about credit card usage and ways to grow credit scores.
Our Learning Center is constantly updated with new tools, resources, and expert financial advice. Take control of your life by planning early and building credit.