A couple decades ago, there were only a few credit cards offered in the United States. Now, there are over 1,000 on the market. Issuers like Citi, Chase, Discover, Capital One, Barclay, Bank of America and American Express have saturated the market with card offers. This gives you, the consumer, more to choose from, but it also can make the decision a little overwhelming. You may be asking yourself, what is the best credit card for me? What makes one credit card better than the other? The guide below will show you how to weed through hundreds of offers to find the card that is right for you.
Know Your Credit Score
Your credit score is going to be the most important factor in determining what kind of credit card you can get. Issuers take a financial risk with every credit card they approve. If you have a high credit score, you represent less risk to the issuer so you may be able to secure a credit card with a relatively low interest rate. Conversely, if your credit score is low, issuers will be less willing to take a risk on you. If they do approve you for a credit card, you will likely have a high interest rate assigned to your account.
So your credit score will significantly narrow your search. The first step in finding a card is finding out what your credit score is. That score will determine your credit worthiness. Here is a general breakdown of your score and the corresponding credit ranking:
- Poor: 350-639
- Fair: 640-699
- Good: 700-749
- Excellent: 750-850
Once you have an idea of how good or bad your credit is, you can narrow down your credit card options considerably. If you are fortunate to have excellent credit, you can choose from almost any card you want.
How the Card will be Used
Your second factor to consider is how you will use the card. Will you likely carry a balance from one month to the next, or will you always completely pay off the balance each month? This takes a serious and honest appraisal of your level of financial responsibility. If you feel you may be carrying a balance, you need to apply for a card with the lowest interest rate for your credit ranking. The card's interest rate will determine how costly it will be to use that card, and that needs to be an important factor in figuring out the best card for you.
Look for Rewards
If you plan on paying off the balance each month, then apply for a card with rewards. You can actually earn money by using a credit card, thanks to these rewards programs. You could get a generic cash back credit card that offers rewards for every purchase, or you could get something that is specific to the items you buy most. Examples include gas credit cards, travel credit cards or retail credit cards. You can also find more specific rewards that appeal to a hobby you may have, such as home improvements, NFL merchandise or NASCAR items. Just make sure that the costs don't outweigh the rewards.
Compare the Costs
No credit card is free to use, not even a prepaid card that you load money onto. Thus, you need to assess the various fees associated with different credit cards before determining which one you want to get. Start by looking at the annual fee because this is usually the highest expense on a card. Some cards have no annual fees, but a number of airline and travel cards have annual fees of $75 or more. Unless you use a card like that all the time and build up significant rewards, you aren't going to be able to make the money back from the annual fee. It's not worth having at that point.
Other important fees to compare include monthly fees, balance transfer fees, foreign transaction fees and ATM withdrawal fees. Some of these may not be pertinent to your spending habits; focus on the ones that affect your financial habits the most. You can find all the costs associated with a card in the terms and conditions. Determine how much the card will cost you to use over the course of a year. Get a card that is most affordable for you.
After you have your options narrowed down, only apply for one or two credit cards. Every time you apply for a card, a credit card company pulls your credit report. Each pull could count against your credit score, which means your score may drop with every application. If you are selective in your application process, you will likely get the credit card you want without hurting your credit.
What is the best credit card for me? That's up to you to decide now. Follow the tips above and you'll likely have a great card in no time.