Credit cards can play an important role in your personal finances, but it’s not always easy figuring out how to pick a credit card that aligns with your financial situation, spending habits, and lifestyle.
You have to factor in the different types of credit cards to choose from, as well as the available features on each card. In addition, your credit score may determine your card eligibility, and you still have to navigate the application process.
And then, the best credit card for someone else may not be the best card for you. The right card for you depends on your specific financial goals.
It can be overwhelming at first, so take it all in gradually. Here are five steps to help you learn how to pick the right credit card for your needs.
Check your credit score
Credit scores are calculated by credit bureaus like Equifax, Experian, and TransUnion to help lenders determine how much of a risk you pose. In other words, how likely are you to pay back any money you borrow? Each bureau has its own scoring model, but with all of them, a low credit score represents a higher risk, and a high credit score represents lower risk.
According to the Experian 2020 Consumer Credit Review, the average FICO Score, one type of credit score, in the U.S. is at an all-time high of 710. This growth is reported as “unusually high,” but it’s a good thing. The higher your credit score, the more likely you are to qualify for better credit card products.
If you have an excellent credit score, you’ll likely qualify for premium travel cards. If you have bad credit or no credit, you might have to apply for a card specifically designed to build credit (which likely has little to no perks) before being able to access other options.
To see which credit cards would be a good fit for you based on your current credit score, check out the following:
- Best credit cards for excellent credit
- Best credit cards for good credit
- Best credit cards for fair credit
- Best credit cards for poor credit
- Best credit cards for no credit
The best ways to improve your credit score fast include paying your bills on time, keeping a low credit utilization, and increasing the age of your credit accounts. You can check your credit score and factors affecting your credit score at any time using free services like Experian Boost or Credit Karma.
For a more in-depth look at your credit, request a free copy of your credit report from AnnualCreditReport.com. This is an official website directed by federal law to provide you with one free credit report from each of the three major credit bureaus every 12 months.
Pick the type of credit card
Too many credit card choices may stop you from selecting the right card for your needs. If you learn about the different types of available cards and their purposes, you’ll be able to focus on the cards that provide you the most value.
For example, the best rewards credit cards typically offer rewards for any new purchases you make. This can help you save money on common expenses or save up rewards for financial goals, like making a big purchase or taking a vacation.
Your goals may also help narrow down your card choices to something more specific. If you want to save for a vacation, a travel rewards card might make the most sense. But if you’d rather earn cash to put into your pocket, a cashback rewards card could be a better fit.
Here are many of the types of different credit cards and how they work:
- Cashback credit cards: The best cashback credit cards can help you reduce the cost of everyday expenses by giving you a percentage of the purchase price back to you in the form of cashback rewards.
- Travel rewards credit cards: Booking travel with points and miles is a way to take a (nearly) free vacation. You can earn valuable travel rewards and access helpful benefits when you use the best travel credit cards.
- Airline credit cards: A subset of travel rewards cards, the best airline credit cards are meant for travelers who want certain benefits with airlines and are interested in booking award flights.
- Hotel credit cards: Another subset of travel rewards cards, the best hotel credit cards offer ways to earn points for award stays and some provide benefits like elite status.
- Balance transfer credit cards: The best balance transfer credit cards give you an opportunity to transfer debt to a card with an introductory 0% APR on balance transfers. This can give you the needed time to organize your finances and pay off debt quicker.
- 0% APR credit cards: The best 0% APR credit cards offer 0% intro APR on new purchases for a certain period of time, so you can avoid building interest while paying off your purchases each month.
- Credit-building credit cards: Secured credit cards are designed to help you build or rebuild your credit. They don’t have strict credit requirements, but you have to make a refundable security deposit to qualify. This is different from a regular credit card, which is considered an unsecured card..
- Student credit cards: The best credit cards for students provide opportunities for students to build their credit while learning good money habits. These cards often have lower qualification requirements since many students may have limited credit history.
- Credit cards for military members: Active-duty military members may qualify for exclusive benefits from credit card issuers. This may include fee waivers and low interest rates. The best credit cards for military members are cards that can take advantage of these benefits and offer additional value with their own perks.
- Business credit cards: Small business owners can use the best small business credit cards to earn bonus rewards on common business expenses. This can help them reduce their overall costs and potentially enhance their business travel experiences.
Learn about the features of these credit cards
Each credit card is unique in its own way. Even credit cards of the same type, like travel rewards credit cards, will have different benefits and features to consider.
To narrow down your choices, determine which card features might offer you the most value. For example, do you travel frequently or take one big trip every year? If you don’t travel often but want a travel rewards card, a card without an annual fee could be the best fit. With less travel, you might not use your credit card’s features and benefits enough to offset an annual fee. But a no annual fee travel credit card could make sense.
Here are common card features to consider when learning how to pick a credit card:
- Annual fee: Many cards offer enough value with their rewards and benefits to offset an annual fee. However, the best no annual fee credit cards can help you avoid the stress of trying to offset an annual cost.
- Rewards rate: Look for high rewards earning potential, but also make sure a card can earn high rates in your typical spending categories, like gas, groceries, or dining.
- Welcome offer: New credit cardholders can often meet a minimum spend requirement and receive a welcome bonus or sign-up bonus. Some offers are higher than others, though the actual value of credit card points can vary. Compare values before going with what looks to be the highest offer.
- Foreign transaction fee: If you travel abroad, consider a card with no foreign transaction fees. This will help you avoid racking up fees on purchases you make worldwide.
- Length of 0% APR: Every 0% APR card gives you a time frame for avoiding interest on balance transfers, purchases, or both. Once the time’s up, you’ll start accruing interest again. Keep in mind, the time frame is often different between separate credit cards.
- Balance transfer fee: Doing a balance transfer makes sense only if you’re saving more money in interest than you’re paying in fees to transfer a balance. Check the balance transfer fees before applying for a balance transfer credit card.
- Redemption options: Earning rewards is great, but only if you can use those rewards points how you want. If you want cash back, make sure the card offers options to redeem rewards for statement credits or bank deposits. Likewise with award flights, hotel stays, or anything else you’re looking for.
- Transfer partners: Transfer partners are a common way to use rewards on many travel credit cards. You earn rewards with your card and then transfer them to your favorite airline or hotel loyalty program for reward redemptions. Check to see which transfer partners are available with each credit card.
- Coverages and insurance: Travel insurance, purchase protection, and extended warranty benefits are common perks on certain credit cards. These benefits can help elevate a card over its competition.
- Premium benefits: Annual travel credit, hotel elite status, and airport lounge access are a few benefits associated with premium travel cards. These benefits can help offset annual fees and boost your travel experience.
Apply for the card
If you’re applying for your first credit card, it’s helpful to know how the process works. Many credit card companies offer online applications, which make it easy to apply from anywhere.
Most online credit card applications take a few minutes or less to complete. You’ll need certain information handy, typically including your full name, email address, date of birth, phone number, home address, and Social Security number. In addition, it’s not uncommon for applications to ask for your total annual income and source of income. You can include all available income, which may consist of a spouse or partner’s income as well as your own.
Once you’ve filled out and submitted your online application, you’ll receive an immediate response. You could be instantly approved, denied, or the card issuer may need some time to look over your application. The issuer will contact you within a week or two if you aren’t instantly approved. Most credit cards arrive in seven to 10 business days from when you’re approved.
Follow these tips for managing your credit card
Now that you have a credit card, it’s important you use it responsibly. This will help ensure you build your credit or keep it in good standing. It’s especially important for new cardholders to learn how to use your first credit card responsibly so you can establish good money habits now for your financial future.
Follow these tips for managing your new credit card:
- Pay off your card every month. This will help keep your credit utilization low (below 30% is best) and you’ll avoid racking up lots of interest.
- Don’t max out your card. If you can’t completely pay off your balance, make sure you aren’t maxing out your spending to your card’s credit limit. High credit utilization can affect your credit score and a maxed-out card will accrue loads of interest.
- Pay all your bills on time. Late payments can show up on your credit report, which may lower your credit score, plus you may have to pay a late fee.
- Track your spending. This can help you focus on your spending so you’re not using your credit on things you don’t need and racking up debt.
- Watch your fees. Be aware of the fees attached to your credit card so you don’t trigger an additional cost on accident.
- Check your credit report. Frequently checking your credit report can help you learn how your credit score is affected by different factors, like on-time payments, credit inquiries, and length credit history.
How do you know if a credit card is good?
You’ll know a credit card is good if it helps you achieve your financial goals. This may include building your credit to access better credit products or earning rewards to help book a vacation for your family. If a card’s features and benefits don’t align with your financial situation or lifestyle, it’s likely not a good fit for you.
How many credit cards should you have?
The number of credit cards you have will likely depend on your unique situation, including your spending habits and lifestyle. If you don’t want to worry about a dozen credit cards and their different features, keep your cards to a minimum. If you want to maximize your earning potential on all your expenses, you might want more than a few cards. Either way, remember that too many credit inquiries in a short period of time could negatively affect your credit score.
How do I get my first credit card with no credit history?
The best credit card products are typically available to applicants with lengthy credit histories and good or excellent credit scores. However, if you don’t have any credit history, you can still get a credit card. Secured credit cards provide opportunities for people with bad or no credit to build or rebuild their credit. Also, student credit cards are an excellent way to get your first credit card.
Congratulations! You’ve learned how to pick a credit card based on your credit score, your financial situation, and the card’s features. You’re now ready to find the right card for your wallet and your financial aspirations.
Remember, the best card for you depends on what you’re looking for. What someone else values may not be the right fit for you. So keep your goals in mind and make sure the credit card you choose aligns with those goals.