You don’t want to make a mistake when it comes to applying for the right card. This is an important financial decision. If you get it wrong, it could take years to fix your errors and mistakes. Let’s look at how to select the right credit card for you.
Credit score and history
Every issuer evaluates your credit history differently, so it’s important to understand how your current cards affect your potential access to new ones. When applying for a major card, use the time between receiving an offer and its activation date to check the view your credit report. By keeping track of what’s on your report and checking regularly, you’ll find it easier to spot mistakes and take steps to improve your score if necessary.
A single late payment can seriously damage your financing options, so if you have less-than-stellar financing history, think twice before applying for a new major card. However, if yours is a bad record of making late payments on a series of smaller accounts — say, department store cards — you may be able to get approved for a bigger card that requires more stringent payment policies.
Amounts you owe
If you already carry a high debt load on existing cards or loans, it might be smarter to wait before applying for another plastic companion.
Identify which credit card you want
Getting the right card can be like having a personal financial assistant that helps you spend less, earn more and do it all in style. So which type of card is best for you? To get the most from your new card, you need to know what type of card suits your needs and lifestyle. Here are the essentials of each type:
Credit cards designed to help rebuild your credit
These cards require a security deposit, which can be as little as $200. The deposit, which you normally get back once you close the account or upgrade to an unsecured card, is held in a bank account and earns interest. For this reason, secured cards aren’t typically worth the effort if you have a healthy credit score — you can find plenty of unsecured cards that offer better rewards and interest rates.
If you need to rebuild your credit, however, secured cards can serve as an important first step. If you go this route, aim for a secured card with no annual fee and low-interest rates.
No-interest credit cards
Card interest rates can be a real hassle, particularly if you’re carrying a balance. But there are ways to avoid paying the most on your cards.
Cards that save you money on interest come in two varieties: no-interest cards and cards with deferred interest. With a no-interest card, you pay off your balance in full each month. Over time, this can save you big bucks compared with a deferred-interest card (or any other kind of card). That’s because all cards charge at least an 18 percent annual percentage rate (APR) on purchases, which is why many people carry balances.
The better way to go is a no-interest card, which charges 0 percent APR for an introductory period — as long as six months or more hence an interest free card. If you’re paying your bill in full every month anyway, a no-interest card lets you put off paying interest until the end of the introductory period. That’s when you have the option of either paying off the balance or rolling it over into another 0 percent APR period.
Credit cards that earn you rewards
Cards that earn rewards are obviously a good choice for big spenders, but they’re not the only option for people who travel or shop a lot. If you’re not interested in trying to collect points and miles, you can focus on cards with great perks. Some of these cards offer rental car insurance, trip cancellation insurance, and other types of protection against high-dollar expenses.
The best rewards cards come with annual fees of $100 or more, but they often have higher sign-up bonuses. And there are some cards that don’t charge annual fees but require you to spend a certain amount each year to get the bonus.
Cards without annual fees may have lower sign-up bonuses, but they can still be good options if you aren’t looking to rack up rewards points. These cards offer cashback or other incentives that can add up to as much as 2 percent of your purchases. Look for cards that offer extra rewards for certain types of spending, such as gas or groceries.
Know what credit card is best for you
The right card can save you money and help you avoid carrying a balance from month to month. The wrong one can lead you into debt or let you rack up higher-than-expected fees.
Tally up how much you’ll spend in a year on gas, groceries, and other expenses that might earn more rewards points. Then compare the terms and conditions of your current cards with those of any new offers that catch your eye.
If there’s an annual fee, make sure it’s worth it, considering the value of the rewards and the potential for savings. If the only available card charges a balance transfer fee, consider whether it makes sense to transfer your existing debt to that card.
Once you’ve figured out what cards have what features, try to determine which one will be easiest for you to use responsibly. Some people prefer cash-back cards because they give them quick rewards without forcing them to keep track of bonus categories or spending caps. Others prefer travel cards because they earn rewards with every purchase — and don’t mind paying an annual fee for the privilege.
Selecting the right credit card is a very important step in creating a solid financial future. A bad choice can lead to skyrocketing interest rates, high fees, and other penalties. But with a good option, you’re more likely to be able to pay off your debt on time and avoid interest charges. For example, if you’re planning on taking out a mortgage in the near future, it’s important to have a low-interest card that you can use to make the until the loan is paid off, you must make payments on it.