Did you know that most Americans now enjoy a credit score that’s greater than 700? Or that the number of individuals with a perfect credit score of 850 has skyrocketed by 63 percent over the past decade?
How are American consumers making such significant strides when it comes to their FICO credit scores? By doing their research and choosing the best cards for their lifestyle.
How to choose a credit card that will lead to the most profitable returns for you?
Credit cards prove as diverse as the people who use them. In other words, no one card suits everyone. As a result, you’ll need to factor your financial history, future goals, and spending habits into a final decision.
Let’s take a look at the process so that you can come out ahead when selecting a credit card.
Start with Your Credit Score
How to choose the right credit card? Your credit score determines which cards you’re eligible to receive. So, that’s where you should start.
How do you check your credit score? There are several ways to get your most recent number. They include:
- Using NerdWallet’s free access to credit scores
- Purchasing a copy of your credit report from one of the three major credit bureaus (e.g., Equifax, Transunion, Experian)
- Heading to Annual Credit Report for your free yearly report
- Checking with a credit card account you already have (if applicable) to see if they offer free FICO scores
What happens if you don’t like the number you see? Grab a copy of your credit report, and look for what’s bringing your score down.
Do you see errors on your report? If so, dispute them.
Are there ways to improve your spending habits to build better credit over time? Make some changes.
Why is building a better credit score important? A good credit score raises your odds of getting a credit card loaded with perks.
Identify Your Financial Goals
Once you’ve ascertained your credit score and have a better sense of the types of cards you’re eligible to receive, identify your short- and long-term financial goals. This process will help you choose the best card for your situation.
There are three general credit card types from which to choose:
- Cards that earn rewards
- Cards that save money on interest
- Cards that repair limited or damaged credit
Which of these cards should you select? The answer to this question depends on a variety of factors, including your lifestyle and spending habits. For example, the best travel card in the world will do wonders for a globe trotter.
If you’re not much of a traveler, though? Then, keep looking for a better deal based on your unique needs, activities, and interests. With that in mind, let’s take a closer look at the three types of cards listed above.
Cards that Earn Rewards
Are you prepared to pay off your balance in full each month and never incur interest? Then, a rewards credit card proves your best option. Know going in that these cards tend to have higher APRs, though.
That said, they also offer cash-back rewards, points, or miles on every dollar spent. Many also provide significant sign-up bonuses. So, do a little shopping around before you decide on the right card for your lifestyle.
Cards that Save Money on Interest
Do you have an irregular income? Or plan to use your credit card for emergencies? Then, a card with an introductory zero percent APR and low interest may represent your best option.
If you know you’ll likely carry a balance, go the low-interest rate. What’s more, a balance transfer can help you pay off a high-interest debt interest-free. That said, such offers prove challenging to secure with a low credit score.
Cards that Repair Limited or Damaged Credit
Which kinds of cards should you look for if you have poor credit or little to no credit history? Opt for a secured credit card.
These cards require a security deposit upfront that gets returned to you once you close the account in good standing or upgrade. How much is a secured credit deposit? These deposits start at $200.
As for those with little to no credit history, such as students? Go with an unsecured card meant for college students. You can easily qualify for one of these cards, and it’ll put you on the path to developing a credit history.
Ask the Right Questions
Now, you’ve got a better idea of the cards for which you’re eligible. You also understand that different types of cards can do different things for your financial future and have (ideally) chosen the right card type based on your short- and long-term objectives.
Congrats! You’re ready to use a comparison tool such as NerdWallet’s to search offers based on your score and monthly spending. This resource will assist you in finding the best credit cards for your unique situation.
That said, you’ll likely still be surprised by how many credit card offers are available to you. How do you narrow them down further? By asking the right questions before making a final decision.
For Rewards Cards
Are you interested in a card that will provide returns in the form of rewards, options, or airline miles? Then, ask the following questions as you explore various offers:
- How complicated is this credit card?
- How do I spend my money?
- How soon will I see rewards?
- Are these rewards worth it?
Know that rewards always come with fine print. Depending on the card, however, that fine print section can get very lengthy.
Would you like to avoid dealing with limited award seat availability, rotating bonus rewards, spending caps, and more? We don’t blame you. To keep things simple, look for a card with flat-rate, cash-back rewards on purchases.
Along with concerns about the complex nature of a card’s rewards, your spending habits should inform your decision. Explore a card that offers the highest rewards in the areas where you spend the most.
For example, if you’re a regular traveler, go with a card that offers airline miles and no foreign transaction fees. Or, if you’re a big spender, opt for a card with rewards earnings that can offset your annual fee.
For Cards that Save Money on Interest
Is a zero percent APR on balance transfers and low interest most attractive to you? Then, ask these questions to find the optimal deal:
- What’s the card’s balance transfer policy?
- Does the card offer rewards?
- How long does the zero percent APR period extend?
- What’s the ongoing interest APR after the introductory zero percent rate?
Are you most interested in a balance transfer? Then, you’ll need to double-check some things.
Namely, what’s the card’s policy when it comes to the type of debt transferred? How much is allowable? Is there a difference between balance transfer APR and purchase APR?
While a zero percent introductory fee may look attractive if you’d like to save money, consider the long-term implications of your choice.
For example, do you plan on carrying balances over several years? Go for a card with a low ongoing APR instead of one with a zero percent introductory rate for a year or less.
It’s also worth exploring cards that come with a few months of zero percent APR, such as a sign-up bonus. Although the introductory period will prove shorter, these cards often come with generous ongoing rewards.
For Cards that Repair Limited or Damaged Credit
If you’re a student, new to the credit game, or looking to repair damaged credit, then here are some questions to consider as you explore card offers:
- Can I graduate to a better card later on?
- How much does it cost to open an account?
- Are there annual fees, and, if so, what are they?
- Will this card help me establish a credit history?
If you’re building credit over the long-term, then go with a card that will let you graduate up to the next level. Why is this important? Because such cards let you leave a credit account open longer, thereby boosting your average age of accounts, a critical component of good credit.
For secured cards, opt for the one with the lowest security deposit. In some cases, though, the amount you put down ties directly to your credit limit. So, do your research.
You should also try to avoid cards with annual fees unless you have very poor credit and precious few options. If you can get a card with generous rewards, however, these could offset the annual fee.
You should also make sure you go with a card that reports to all three major credit bureaus. Otherwise, you’ll defeat the whole point of getting a card to build credit.
How to Choose a Credit Card
How to choose a credit card? Finding the best credit card based on your financial history, personal spending habits, and long-term goals is critical to taking charge of your life.
Armed with the tips above, you’ll be in a better place to narrow your credit card search down to a clear winner. Ultimately, the card you choose should fit your lifestyle while helping you achieve your financial goals.
Ready to begin your search? Check out our post on the best credit cards of 2020.