How to pick the right credit card for you

There’s no lack of options when you decide you want a new credit card. And when you’re bombarded with mail offers, advertisements and emails urging you to apply, making that decision can quickly get overwhelming.

The right credit card for you should be one that is personalized to fit your needs. So if you’re not sure what to look for in a credit card or how to choose the right credit card for your lifestyle, these tips will help you narrow it down. We’ll help you figure out what perks to keep an eye out for, how to choose the right type of rewards cards for you and whether the annual fees for these cards are worth it. Here are the steps to take.

Check your credit score

Before deciding what kind of credit card you should get, it’s important to check your credit score first. Why? Because the strength of your credit score could potentially reduce or expand your options.

The credit score needed for certain cards and credit card issuers varies widely. Most of the top rewards credit cards require at least good credit, but there are also cards for people with just fair credit and for consumers who have no credit or a limited credit history.

Before starting your search for a card, you can check your credit score for free. This will help you decide which applications are worth your time. If your credit doesn’t look as good as you hoped, spend some time improving it before applying for a credit card. Two of the most effective and easiest ways to improve your credit include paying all your bills on time (or early) and paying down credit card debt to lower your credit utilization.

Even if you have great credit and your pick of the best cards available, avoid applying for too many cards at once. Any time you apply for a new credit card, you’ll incur a hard pull on your credit report that will temporarily drop your credit score by up to 10 points — although a 5 point drop is more likely. Additionally, several hard pulls in a short time could hurt your chances of approval for cards or other loans in the near future.

Decide what you want your credit card to do for you

Once you know which types of cards you can qualify for, it’s time to research options. What do you want a credit card to do for you? You don’t have to choose just one type of credit card either.

There’s often a card that can help you fulfill multiple goals — like building your credit building or financing a new purchase while earning cash back or other rewards. But generally, credit cards tend to fall into certain categories that revolve around specific goals.

Credit-building cards can help you improve your credit score

Responsibly using any credit card will improve your credit score over time, but some card issuers offer credit cards specifically designed for people with bad credit or a limited credit history. These cards tend to be relatively easy to qualify for.

Look for credit-building cards that offer free FICO credit score access, credit limit increase reviews and paths to upgrade to a better card. These features are industry standards that help people improve their credit.

Credit-building cards come in a few basic types — most notably secured credit cards, unsecured credit-building cards and student credit cards.

Secured cards work like traditional credit cards, with one major difference: They require a security deposit when you open the account. Your deposit typically becomes your credit limit and is refundable when you close the card or upgrade to an unsecured card.

Unsecured credit-building cards do not require a security deposit. With no deposit required, lenders typically rely on a consumer’s credit score for approval. As a result, unsecured credit-building cards may be more difficult to obtain than secured cards.

Student credit cards are designed to help college students build their credit. Since most college students have little to no credit history, qualifying for one of these cards is typically fairly easy. The cards often come with lower credit limits and higher annual percentage rates (APRs). However, they may also offer perks and rewards — like the ability to earn cash back — that are not typically found on other types of credit-building cards.

Balance transfer credit cards can help you pay off existing debt

According to Bankrate’s latest Credit Card Debt Survey, about half (48 percent) of American credit card holders carry debt from month to month. Of those, 57 percent (with household incomes of $80,000 or more) have been in credit card debt for more than a year. If you’re one of these people, it is important to understand that credit card debt is one of the most expensive forms of borrowing, so you should try to pay off your credit cards as soon as possible.

Balance transfer credit cards are an ideal choice to help pay off credit card debt. By transferring debt from one or more cards to a balance transfer card that offers a 0 percent intro APR, you can chip away at your balance without worrying about interest charges. Be sure to have a payoff plan in place before you start because any balance that remains at the end of your intro APR period will be subject to the card’s regular APR.

If your current credit card has a high interest rate, a good balance transfer card with a low or 0 percent introductory APR can be a lifesaver as you work to pay down your debt efficiently and at a lower cost.

Low-interest credit cards can help you finance a big purchase

A low-interest credit card is a good fit if you need to finance expenses over time while minimizing interest charges. These cards tend to come in two major forms, offering either a lower ongoing rate than the average credit card APR or a 0 percent introductory APR on new purchases.

A card with a promotional APR on purchases makes the most sense if you have major expenses on the horizon — such as buying new furniture, moving or a renovation. These cards allow you to pay off expenses over time while avoiding interest. Promotional APRs on new purchases typically last 12 to 21 months, after which any remaining balance is subject to the card’s regular APR.

If you think you’ll carry a balance after the promotional APR period, or if you generally carry a balance from time to time, you should focus less on the introductory rate and more on the ongoing APR. Some of the best low-interest cards offer variable APR ranges that currently start between 17 and 18 percent. That might not sound low, but the average credit card APR is now more than 20 percent.

Credit requirements for these cards vary, but you’ll usually need at least good credit to secure a decent ongoing APR.

Rewards credit cards can allow you to earn cash back, points or miles

Typically reserved for people with good and excellent credit scores, rewards credit cards are best suited to people who don’t need to worry about building credit and want to earn cash back or points via welcome bonuses and purchases.

You have several types of rewards credit cards to consider:

• Cash back cards: These cards typically earn a percentage of cash back on your spending. In most cases, you can redeem your cash back in the form of a direct deposit, statement credit or a check.
• Points-earning cards: When you want versatility in how you redeem your rewards, a points card might be the best choice. These cards allow you to accumulate points instead of dollars as you spend. You generally have the option to redeem your points for cash back, travel, merchandise and more.
• Miles-earning cards: Are you an aspiring jetsetter? A miles-earning card helps you rack up airline miles as you spend. You can redeem them for flights, usually with a particular brand or partner airline.

If you’re comparing two cash back cards, consider your normal spending habits. Cards that earn elevated cash back on categories like groceries or gas are great for on-the-go families, while flat-rate cash back cards may be better for people who want to pursue a straightforward rewards strategy.

The amount of rewards you earn on each purchase can vary, but the best flat-rate cash back cards earn at least 2 percent cash back on all purchases. Others earn up to 5 percent back (or more) on bonus categories and 1 percent on everything else.

Meanwhile, rewards cards are great for people who want to bank points or miles for their next trip. Look for cards that earn more points and miles in categories you spend the most in — at least 3X points or miles per dollar. Like cash back cards, however, straightforward travel cards that offer 1X to 1.5X points or miles per dollar on all purchases are also available.

Don’t overspend for rewards

Be careful not to use credit card rewards as a reason to spend beyond your budget and get into debt. Sixty-seven percent of Americans who have credit card debt still try to maximize credit card rewards, according to Bankrate’s Chasing Rewards in Debt Survey.

Analyze your current spending

What do you spend the most money on? You could make an estimate, but you don’t have to.

An often overlooked method of choosing a credit card is reviewing your highest spending categories on your current credit card.

A quick way to see this info is reviewing your year-end credit card summary. This separates your purchases by category throughout the year, plus it shows what you’ve paid in interest and fees. Knowing where your money goes is crucial when you want to find the right credit card.

For example, if you have a credit card offering its highest rewards rate for gas and grocery purchases but you spend mostly at restaurants and take the metro everywhere, you’d be doing yourself a disservice. Or if you carry a balance throughout the year and see a high amount of total interest on your summary, it may be helpful for you to go with a low-interest credit card or balance transfer card.

Money tip: Don’t have a credit card yet? That’s OK. Many banks have an online budgeting feature with similar functions for breaking down your checking account spending.

To get the most out of your next credit card, it should fit your spending and goals — not the other way around.

Pick the card that offers the best value

Beyond the type of credit card, we recommend choosing a credit card with benefits and features that are relevant to you. Here are some perks to look for:

• Secured and student credit cards

  • • Credit line increases: When considering a secured credit card, look for options that reward responsible usage with periodic credit line increases. That usually means updating your income regularly with your card issuer, but the potential improvement to your credit score is worth it.

  • • Graduation: The ultimate goal of getting a secured credit card or a student card is to eventually have good enough credit to get an unsecured card. Some cards make this transition easier by allowing you to graduate to an unsecured card when your credit improves or when you graduate college — no new application needed.

• Low interest and 0 percent APR credit cards

  • • Length of introductory 0 percent offer: No credit card offers 0 percent interest indefinitely, but you can find some top cards offering 0 percent introductory periods that are up to 21 months long.

  • • No penalty APR or late fees: If you fall behind on your payments, some credit card companies charge costly fees or a penalty APR. If you’re still new to credit cards and don’t want a costly consequence for being late on a payment, consider looking for a card without these fees.

• Rewards cards

  • Type of rewards: There are many types of credit card rewards, including cash back, airline miles and points. Cash back is simplest for most, but you may get more bang for your buck by redeeming points or airline miles. Cards that offer flexible rewards, which are rewards not tied to a certain airline or hotel brand, often provide the most value.
  • Low required spending: Some rewards cards require you to meet a certain spending limit before qualifying for bonuses or special offers. If you are considering a rewards card and want to earn its welcome bonus, for instance, take note of the spending requirement to make sure you can cross that threshold without overspending.
  • No (or low) annual fee: Rewards cards offer the best perks, but many have annual fees. The rewards will often outweigh the burden of an annual fee, but there are also plenty of cards with no yearly fee.

Familiarize yourself with interest rates and fees

Credit card issuers make money through interest and fees. Federal law requires that all credit cards disclose their interest rate fees in advance, so it’s important to research these added costs before applying for a new card.

Interest rates

Interest rates on credit cards can vary significantly. Some cards may offer interest rates below the current average, while others may charge considerably more. A card’s APR should be a defining factor in your decision-making process, especially if you think you may have to carry a balance.

Fees

Different types of credit cards charge various fees. Some of the most common you may encounter include:

• Annual fee: Many credit cards come with annual fees that typically range anywhere from $95 to $550 and higher. Some issuers will also waive their annual fees in the first year of card ownership, and sometimes you can get that fee waived just by asking.
• Balance transfer fee: If you already have a credit card and you’re struggling to pay off high-interest credit card debt, a balance transfer card could be a good option for you. Balance transfer fees are typically 3 percent to 5 percent of your transfer amount, often with a minimum of $5 to $10.
• Late payment fee: If you pay your credit card statement late, you could be charged a late payment fee. These fees differ depending on the issuer and the number of times you have paid your balance late.
• Cash advance fee: A cash advance is when you take money out of an ATM using your credit card. Cash advances should be avoided whenever possible. Fees associated with cash advances can be high — typically 3 percent to 5 percent of the amount withdrawn. You’ll also be charged interest on a cash advance right away, often at a higher rate than your regular APR.
• Foreign transaction fee: When you use your credit card for any purchases in foreign currency, whether outside the U.S. or shopping online from home, you may be charged a foreign transaction fee. These fees typically cost around 3 percent per transaction. If you’re an avid traveler, consider credit cards that don’t charge foreign transaction fees.

The bottom line

With so many different types of credit cards available, it can be hard to find the right one for your needs. Once you determine which features, benefits and goals you want to aim for, you can start narrowing down your options and the decision becomes easier. If you still want some help choosing the right credit card, Bankrate’s CardMatch tool can do some of the heavy lifting for you by finding credit cards that fit your credit profile and goals.

Frequently asked questions about how to choose a credit card

• Is an annual fee worth it?

  It depends. If your spending habits and lifestyle allow you to take full advantage of a card’s rewards and benefits, choosing a card with an annual fee can easily be worth it. Just be sure that you don’t cancel out any benefits you receive by carrying a balance and having to pay interest.

• What is a good first credit card?

  The right first credit card for you is heavily dependent upon your credit score and your spending habits. If you have a limited credit history, consider opting for a secured credit card or a student card. If you have good to excellent credit, choosing a cash back or rewards card that rewards you for your spending may be more optimal.

• How often should you apply for a credit card?

  Applying for a new credit card requires a hard inquiry to be made on your credit report. Each time a hard inquiry is performed, your credit score will drop by a few points. So, it is important not to apply too often — especially if you are getting ready to apply for another type of loan (like a mortgage or car loan). The more often you apply for new credit, the less likely you are to be approved.

• How many credit cards should you have?

  There is no concrete or optimal number of credit cards you should have at one time. Different types of cards offer different advantages, so the amount of credit cards you should have is dependent upon how well you can handle them. The most important factors are to stay organized with the cards you have, be sure to get value from any cards with annual fees and avoid paying interest by paying off your balances every month.