Finding the right credit card can be a challenge.
After all, no credit card will better in every category, or for everyone. However, when you know what questions to ask, you can understand your options better and choose the best card for your situation.
Use the four steps below to pick the right credit card for you:
1. Get Your Credit Score
By checking your credit, you will be able to discover which credit cards you are eligible for in the first place. As you might have guessed, a better score qualifies you for cards that offer better perks.
You can check your credit score in the following ways:
- Check your score for free with services like Credit Karma.
- Ask your card issuer if they provide FICO scores for free, because some do.
- Purchase your credit score from one of the three big credit bureaus (Equifax, Experian, and TransUnion).
If your score is not what you were expecting, then you may want to take a look at your credit reports to see what the issue is.
By federal law, you are entitled to one free copy of your credit report by all three major bureaus once a year. The official site for this is: AnnualCreditReport.com.
Then, you can work on improving your score by adjusting your spending, finding ways to make additional income, and disputing any errors that might be on your report.
2. Narrow it Down to the Right Type of Credit Card
Credit cards generally fall into three categories. These categories are determined by what the card is designed to help you accomplish.
Thus, a credit card can help you do one of three things:
a) Build or improve credit
b) Save money via lower interest rates
c) Earn rewards
Let’s take a look at which credit cards can help you accomplish the three goals above:
A) To Build or Repair Your Credit: Secured or Student Credit Card
Secured credit cards often require a deposit of at least $200. You will get the deposit back when you upgrade your account or close the account in good standing.
A student credit card is an unsecured card designed for college students who don’t have much credit built yet, if any.
B) To Save Money on Interest: Balance Transfer Card or 0% APR Card with Low Interest
If you have good credit already, a balance transfer card can help you pay down your debt without interest.
However, if your credit is average below, you likely won’t qualify for such an offer.
C) To Earn Rewards: Cash Back, Travel, or Rewards Card
If you always pay your balance in full and don’t accrue interest, a rewards card can be a great fit for you.
While these cards will usually have a higher APR, they give you bigger bonuses for signing up, points and miles for travel, and cash back on the money you spend.
3. Ask the Right Questions Based On Your Needs
Now you understand what the three general categories of credit cards help you do.
But once you have selected the right category, you still need to compare individual cards.
You’ll do this by asking the right questions.
Below are the questions you should ask about each card offer to ensure it’s a good fit for your situation:
Questions for Secured Cards and Student Cards
- Will it help you build your credit? – In order for a card to help you build or repair your credit, it needs to report your card payments to each of the major credit bureaus. A lot of secured cards fail to do this, so double check first.
- What are the costs and fees? – With these cards, there can be costs to open the account, as well as annual fees. Keep in mind that the small rewards you get from these cards don’t usually outweigh the annual fee. Also understand that your credit limit might be tied to the amount of your security deposit, so a lower deposit is not always better.
- Can you upgrade to a different card eventually? – One of the things that helps your credit score is having “aged” accounts that have been opened for a long time. If you are able to upgrade your card to one with better terms later on, you won’t just have more perks but you can also raise your average account age.
Questions for Balance Transfer or 0% APR Cards with Low Interest
- How long does the 0% APR period last? – You need ample time to pay off your debt without incurring interest. Additionally, if you plan on carrying a balance for a longer period of time, look for cards with lower ongoing APRs.
- How does the card handle balance transfers? – If you plan on transferring a balance, make sure your card allows that type of debt to be moved over and find out what kind of limit they have on transfers. Also, get clarity on the APR for your balance transfer, as opposed to the card’s purchase APR (which is often different).
- What kinds of rewards does the card offer? – Some cards offer better signing bonuses, while others offer better long term rewards. The length of time you plan to have the account open for will help you determine which rewards are worth more to you.
Questions for Cash Back, Travel, or Rewards Cards:
- How do you spend your money? – If you travel a lot, you might want a card that lets you rack up airline miles and doesn’t have foreign transaction fees. And if you spend a lot of money each year, an annual fee might not be a big deal if you earn tons of rewards to offset it.
- How straightforward are the terms? – some cards make it more confusing with caps on your spending, rotating bonuses, strict loyalty programs, and more. Look for a card that gives you a flat rate on your cash back rewards.
4. Use Tiebreakers to Make Your Final Decision
Sometimes, it’s too tough to decide between two or more cards that you’ve narrowed your search down to.
When that happens, you’ll need to look a little closer at the details so you can confidently commit to the right card for you:
Secured and Student Cards
- Automatic credit increases – some cards will automatically increase your credit limit once you’ve made a few on-time payments in a row.
- Interest on your security deposit – some cards pay let you earn interest on your initial deposit, which you’ll receive when you get your deposit back.
Balance Transfer, 0% APR, or Low Interest Cards
- Planning tools – some card companies provide online tools to manage the repayment of your debt and stay on track.
- Lack of certain fees and penalties – Some issuers don’t have a penalty APR or late fees for particular cards. This could be useful if you have a surprise life event that causes you to miss payments.
Cash Back, Travel, or Rewards Cards
- Lower requirements for sign-up bonuses – the less you have to have to spend to get your bonus, the easier it is to earn it.
- Rewards don’t expire – look for issuers that let you reap your rewards for as long as your card is open.
Note: When you fill out a card application, you are allowed to put down any income that you can reasonably gain access to, not only your personal income. This includes scholarships, grants, your partner’s income, and more.
You’ve Selected Your Card. What Now?
Picking the right credit card for you is a great feeling. But you’re done yet. Now, you need to use the card in a way that allows you to get the most out of it. So always keep your main goal (the reason you applied for that particular card) in mind. That way, your credit card will be a tool that helps you achieve your financial dreams in the most effective way possible.