How to Pick The Best Credit Card
Choosing the best credit card for your needs can be a daunting task. It seems like every store, financial institution, and company has their own credit card, and it is difficult to sort through the duds to find the gem. Thankfully we are here to help you determine what your needs are, and then choose the best card to suit those needs.
Before you dive into picking a new credit card, the first thing you should consider is to check your credit score. Ultimately, credit score is what can determine approval rating, interest rate, and other credit card perks you may be eligible for. Everyone is eligible for one free credit report every 12 months, and there are many places where you can get it, such as the ones listed below.
nerdwallet.com/lp/free-credit-score
After you are able to look at your credit report, you can begin working towards disputing errors and paying off debts that can quickly raise your credit score. This will put you in the best position to begin shopping around for your ideal credit card.
Decide What You Need
While you are working towards improving your score, you have to make the decision of what type of card you are looking for. Typically, there are three types of cards most consumers seek.
- A credit-building card. These are usually secured credit cards (a card that requires you to use your own funds) and have a relatively low limit. The goal of these cards is helping the user to improve their credit so they can later qualify for a card with better interest, higher limits, and/or better perks.
- A low interest card. Cards with a low or no-interest introductory rate are perfect for balance transfers from higher interest cards. These cards offer great rates to start, and competitive rates after the introductory period. The downside is they are more difficult to get for consumers with fair or poor credit. These are also great cards if you are looking for something to use in case of emergencies.
A card with points/perks/rewards. There are cards offered that for every dollar you spend, you get some sort of reward. Whether it be airline miles, cash back (limited to types of merchants or purchases), or redeemable rewards. Credit cards with this type of perk usually have higher APR, but the rewards are an added bonus to purchases you would normally make anyway. For this type of card, it is best to pay off completely every month in order to get the most out of the benefits.
Ask Questions
After you have made the decision regarding what type of card you want, there are additional questions that need to be answered when looking deeper at individual cards. These questions largely vary, depending on what you will be using the card for.
For A Credit Builder Card
Does the card you're choosing actually build your credit? Make sure the credit card company reports out to the three credit bureaus regularly. Also, when you open the card, is there a fee? For an unsecured card, are you being asked to pay a $299 yearly fee for a $500 limit? Many credit builder cards do have a yearly fee (that is usually billed out monthly), so try to find the lowest fee that you can. For a secured card, try to find one that requires the lowest deposit, so you are making the most of the limited funds you may have. Lastly, are you later able to upgrade this card to a more competitive one?
For A Low Interest Card
If you are in a position where you want to transfer a high-interest credit card balance to something with low or no-interest, you definitely want to ask several questions of the card you are considering. How long is the introductory rate, and then what does the rate change to? What is their balance transfer policy, and are there any additional fees associated with transferring your balance?
For A Rewards Card
The first question you want to ask yourself when choosing a card based off its reward system is, where do you shop most? If you are using the for gas, look for a card with the most cash back or points on gas stations. The second thing you want to consider is how complicated it might be to use those rewards. For airline miles, are the a dozen hoops to jump through, blackout dates, or other fees to use your points? Some credit cards allow you to cash in your points with a few clicks, those are the cards you are looking for.
Welcome to the final step! You have done all the work to pick the credit card that is just right for you. Here are some factors to consider when you have multiple cards in mind, and can't just pick one.
Are you automatically evaluated for limit increases periodically?
- Do you gain interest on your secured deposit?
- What are the late fees?
- What is the penalty APR?
- How low are the spending requirements to earn your rewards?
- Do the rewards expire?
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