Choosing the right credit card can seem like a difficult and daunting task. Each credit card is different and offers a variety of benefits and perk.
Cards can also come with their fair share of drawbacks, so it is important to consider the options carefully, according to certain personal factors. Before applying for a credit card, it is wise to consider financial needs and habits that your new card must cover. Depending on how the card will be used, consider the terms and conditions as well as any promotions offered by the card’s financial institution.
Types of Credit Cards Available
There are a variety of credit cards available to consumers. There are options that work for everyone, from those with excellent credit to those who are just starting to build theirs. Knowing the kinds of cards that are offered by companies can help narrow down the search for the right credit card. Below are a few of the credit card options on the market:
- Rewards credit card – Credit cards of this kind offer rewards and perks to cardholders. Rewards are often earned as cash back on purchases or points for every dollar spent. Some cards offer extra cash back or points on certain expenses, such as groceries, fuel or travel purchases. Since reward cards usually have higher interest rates, they are best for those who plan on paying their credit card balance in full.
- Low interest rate credit cards – Choosing a credit card with a low interest rate is best for those who might not pay their balance in full every month. Most cards are variable-rate cards and have APRs that are subject to change. Some cards offer 0 percent APR for a short period of time and have high interest rates once the period has expired. Most low-interest credit cards do not offer rewards but provide the benefit of lower interest charges on unpaid balances.
- Secured credit cards – Consumers looking to build their credit or those who do not qualify for a traditional credit card have the option of applying for a secured credit card. These credit cards require a cash collateral deposit in the amount of the credit line offered. If a cardholder defaults on his or her card payment, the deposit is forfeited to the credit card company. The credit line for secure credit cards is usually small, but some credit card companies may allow cardholders to add a larger deposit in order to increase their credit line.
What to Consider When Choosing a Credit Card
When choosing a credit card, there are many factors to keep in mind. From financial needs and spending habits to benefits and credit card fees, there is plenty to take into account before making a final decision. Credit cards offer benefits that many people are not aware of, as well as hidden fees and varying interest rates.
Cards have features that may help the card owner save money, depending on her or his spending habits. For example, someone who plans to carry a balance every month would want to look at a card with low APR. These cards save the owner money in the long run. Someone who plans to pay her or his balance every month would prioritize other card features over a low APR, since he or she will likely avoid paying interest altogether.
Some of the factors to consider when choosing the right credit card are:
- Your credit score – Credit card companies take your credit score into account when processing your application. Considering your credit score will help you choose a card that suits your credit score, increasing your chances of being approved. Each card you are denied for lowers your credit score, since the credit card company will run a hard credit inquiry when deciding whether or not to offer the card.
- Your financial habits – Considering your financial needs and habits is an important step to take in the credit card selection process. How do you plan on using the card? Will you pay your balance in full every month or will you need to carry a balance from month to month? Will you need to transfer a balance from another account to the new card? Knowing what you need a card to cover will help you choose the card that offers the right APR or balance transfer fee, should you need either.
- Your preferred rewards – If you plan on paying your monthly credit card balance in full, you might want to consider a card that offers rewards you are likely to use. Note where you spend most of your money. If you spend the most on groceries or gasoline, consider a card that offers more cash back on grocery and fuel purchases. Credit cards offer many other benefits, such as cash back or points on travel and dining purchases.
Applying for the Right Credit Card
Once you have narrowed down your choices, choosing the right card to apply for should be relatively easy. Making a choice between two or three similar cards comes down to the details. Doing the appropriate research is key in selecting a card. Look beyond the advertised benefits and rewards. Credit cards that advertise great benefits tend often have hidden disadvantages. Read the fine print before submitting an application to gain a better understanding of how the card works, and make sure the card truly fits your financial needs.
When applying for a credit card with a low credit score, there are extra precautions to consider. If a card company is likely to deny your application, it is best not to apply for that specific card. It is also wise to apply for credit cards one at a time, since repeated hard inquiries by creditors can damage your credit.
Once you have chosen a credit card to apply for, keep in mind that you may choose to include any income you have access to, not just personal income. Other sources of income, such as scholarships or retirement benefits, can be included on the application. Including your partner or spouse’s income, if you have access to it, can also improve your chances of being approved.