Generally, credit cards are the best way to build credit, assuming you pay your monthly statement on time and don’t spend beyond your means. But there are so many credit cards on the market now – what’s the best card for you? Finding the best card that fits your lifestyle and spending habits is important.
And while people like to talk about the prestige of having their picture on a rewards card, it isn’t the only factor in picking one. You want one that will help you save money and encourage healthy spending habits. This article discusses seven Steps to Picking the Right Card.
The most common types of credit cards:
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Gas and groceries. This credit card offer discounts at gas stations, grocery stores, and other retailers where you spend money every week. They’re not as good if you don’t shop at these businesses often, but they’re worth considering if you do.
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Airline miles or hotel points. If you often travel or plan on doing so in the future, a rewards card might be a good choice for you. This credit card generally offer something like 1% back on all purchases, with some giving double points on certain categories such as travel and dining out. Some even give extra points for signing up for their programs – say 5,000 bonus points just for joining! You can redeem your rewards for free flights, hotel stays, entertainment events, and more through their websites or with an app like Chase Ultimate Rewards® (Chase).
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Cash back bonuses. Some cards offer cash back on purchases – anywhere from 1 percent to 5 percent – which can add up quickly over time. Just keep in mind that these bonuses come with spending limits; after hitting those limits, your rewards rate will drop to 1 percent or less until you get back under your limit again.
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Rewards cards. These cards offer cash back or points redeemed for merchandise or travel. The rewards can be very generous, but they usually come with high-interest rates and annual fees that offset the value of the rewards unless you pay off your balance in full each month.
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Business credit cards. For small business owners who want access to credit lines larger than personal credit cards, business credit cards are an option.
Here are seven steps to help you pick the right credit card:
1. Know Your Needs
Before shopping for a credit card, knowing what kind of card is right for your needs is essential. What do you plan to use it for? Will it be used often or just occasionally? Do you want reward points or cash back?
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Are you planning to travel? You’ll want a credit card that offers perks like free checked bags or in-flight Wi-Fi.
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Do you plan to carry a balance from month to month? If so, ensure the interest rate is low enough to keep your payments affordable.
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What about foreign transaction fees? If you plan to use the credit card when traveling outside the United States, make sure it doesn’t come with a fee for each purchase.
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Is there a sign-up bonus? Some credit cards offer hefty rewards just for signing up and spending a certain amount within a few months of opening your account.
2. Before chosing your credit card check your credit score
Credit card companies want to ensure you’re responsible and can pay off your monthly balance. Before they approve you for a credit card, they’ll check your credit score. This number helps them determine whether you will likely default on your payments. Typically, the higher your score, the better your chances of getting approved for a card.
Many factors affect your score, but paying all of your bills on time is key – having even one late payment can lower it by 30 points or more.
3. Get the Best Rewards Rates
If you’re looking for a credit card that will give you cash back or airline miles, the rewards rate is the most important thing to consider. The best cards offer rewards rates of 1% and higher, which means you’ll be getting $ 10 back for every $ 1,000 spent.
If that sounds like a lot, consider it’s not uncommon to spend $ 1,000 on groceries weekly. That’s $ 50 worth of groceries each month, so you’d have to keep using your card for more than six years before breaking even with a 0% APR credit card.
4. Consider the Credit Card Annual Fees
Many of the best rewards credit cards charge a yearly fee, ranging from $ 0 to hundreds of dollars. So you’ll want to keep in mind how much you spend on your card credit each year to decide whether it’s worth paying a fee.
5. Pay always on time
That’s the best way to avoid late fees, up to $ 39 per occurrence if you miss a payment. If you have more than one credit card, keep track of them, so you don’t miss a payment on any of them.
If you’re worried about a potential late payment, call your card issuer before the due date and ask for an extension. Most issuers will grant it, but they might charge a fee or interest immediately after the grace period ends – so be sure to pay at least the minimum amount due each month.
6. Consider Credit Card Other Benefits and Perks
Credit cards come with a variety of rewards and perks. These can include cash back, travel rewards, and points that can be redeemed for merchandise or travel. Therefore, it’s important to consider the type of card that best suits your needs before applying for one.
In addition to rewards programs, credit cards offer other benefits such as purchase protection and extended warranties. These additional features may be worth considering if you have many purchases over time. However, if you’re only planning on using your card periodically or infrequently, then this may not be important to you at all.
7. Compare Cards’ Terms of Use
When comparing credit cards, it’s also essential to consider the terms and conditions. This will help determine if the credit card fits your lifestyle and spending patterns. For example, how long does it take for points to expire? Are there fees associated with membership? Do you get rewards for every purchase or only for certain purchases?
How your credit score impacts your chance of approval to receive a credit card
To pick the right credit card for your needs, you must consider your credit score and history.
Here’s how it works: Your credit score is a number that represents how likely you are to pay back the money you borrow. The higher your score, the more likely you will have access to better interest rates, lower fees, and more perks.
That said, if there are errors on your report or the bureaus don’t have enough information about you, this number may be inaccurate.
The higher a person’s credit score is, the more likely they are to get approved for a new account or see better terms on their existing accounts – at least that’s generally true for secured cards and unsecured personal loans, but it also depends on other factors like income level, employment history and length of time with a bank or financial institution.
Debit Cards vs. Credit Cards
A debit card is just like an ATM card, except it goes in your wallet instead of your purse or wallet. You link it up to your checking account, and when you swipe it at the register (or online), it’s debited from that account. It’s just like paying cash with a check; you have to have enough money before making a purchase.
Credit cards are different because they allow you to borrow money from the issuing bank. This gives consumers more flexibility when making purchases because they’re not required to have “ready cash” ahead of time for their purchases. However, if you don’t pay off your balance monthly, interest charges will accrue on any amount owed.
Things that affect your credit card score
Many things affect your credit card score, from the debt you owe to the length of time you’ve had a credit card.
Here are some of the key factors:
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Credit utilization rate – This is the amount of money you have borrowed compared to how much credit you have available. For example, if you have $ 10,000 in available credit and $ 5,000 in total debt, your utilization rate would be 50 percent ($ 5,000 / $ 10,000). The lower your percentage, the better it is for your score.
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Length of credit history – A longer track record means you’ve been more responsible with your spending over time and are more likely to pay off your debts monthly. However, if you’ve only had one account for five years versus 10 years, that could negatively impact your score because there’s less data available about how responsible a borrower you are overall.
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Types of credit accounts – Having multiple types of accounts (credit cards, auto loans, or mortgages) helps show lenders that you can handle multiple types of loans responsibly at once without getting overwhelmed by payments or interest rates. But having too many open accounts can also hurt your score because having too much debt makes it seem like you cannot manage your finances properly.
Conclusion
Picking a credit card comes with lots of questions. How much will I have to spend? Will I get my cashback? Can I earn miles? How many people can share the card? Before shopping around, search online to find credit cards that fit your lifestyle and needs best. Then it’s time to compare their offerings. Find the one that’s right for you based on what you’re looking for. Then enter your information on the application and wait for your new credit card in the mailbox!