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How to choose the best credit card: Step-by-step

From your spending habits to a card's fees and penalties, here's everything you need to know to pick the right kind of plastic

Summary

When picking a card, the No. 1 tip is to know yourself and how you will use the card. Here’s everything else you need to know when choosing the best credit card.

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A credit card is a bit like a chain saw — it’s a very handy tool, but it’s capable of inflicting horrendous damage if used improperly. The same advice applies to both of them — choose the right tool for the job, and follow the safety rules.

So when you choose a credit card, here are six things to consider.

1. Check your credit score

Your credit score will play a big role in determining what kind of card you’ll qualify for. Generally, a score of 700 or higher will allow you to get a rewards card with a sign-up bonus or a promotional interest rate (and a relatively low regular APR).

There are many ways to check your credit score, but not all of them are free. Fortunately, issuers such as Discover and Capital One offer services that allow you to check your score at no cost, even if you’re not a customer. And if you have other credit cards, chances are some of them will include your free FICO score, updated monthly, in your online account.

You can also request a free copy of your credit report at AnnualCreditReport.com. You are entitled to one free report from each of the major credit bureaus — Equifax, Experian and TransUnion — per year. Review your report for any items that may be holding down your score, including errors or high card balances.

2. How will you use the card? 

Even before you choose a card, the first question to be answered is how you intend to use it. Are you the kind of person who will pay off the card every month without fail, or do you anticipate carrying a balance from month to month? Are you going to use it to pay for everything, or just for emergencies?

Need to build credit?

If you’re going to pay the bill in full every month, then the interest rate doesn’t really matter to you. Look for the best card with no annual fee and a longer grace period so you don’t get hit with a finance charge. Paying your bill on time and in full is the best way to establish and maintain strong credit.

Need to pay down debt?

If you’re going to carry a balance, you want the lowest possible interest rate or, better yet, a low introductory rate.

Want to earn rewards?

If this is going to be your go-to-card for most of what you buy, look for a card with a generous credit limit and a solid rewards program.

Need an emergency card?

If it’s only going to be used for emergencies, go for a no-frills card with a great low interest rate and low fees.

“There are so many cards that are out there,” says Howard Dvorkin, founder of Fort Lauderdale, Florida-based  Consolidated Credit Counseling Services and author of “Credit Hell: How to Get Out of Debt.” “People have to sit down and think about what’s important to them.”

3. The interest rate

On a credit card offer, the interest rate appears as the APR, or annual percentage rate. It can either be a fixed rate or a variable rate that is tied to another financial indicator, most commonly the prime rate. With a fixed-rate card, you know what the interest rate will be from month to month; a card with a variable rate can fluctuate. However, even a card with a fixed interest rate can change based on certain triggers, such as paying your card — or any card — late, or going over your limit. Or because the credit card issuer decides to change it. Yes, they really can do that; they just have to notify you.

If you’re going to carry a balance, you need to consider how the finance charge is calculated. The most common method is average daily balance, which means that the daily balances are added together and then divided by the number of days in the billing cycle. Stay away from credit cards that compute the balance using two billing cycles; this winds up costing you more money in financing fees. There are plenty of cards that don’t.

4. Credit limit

This is the amount of money that the credit card issuer is willing to let you borrow. Depending on your credit history, it could be anything from a few hundred dollars to tens of thousands of dollars. You don’t want a situation in which you’re close to maxing out your credit limit. It can hurt your credit score — and some credit card issuers have cut customers’ credit limits to an amount that’s lower than their current balance. Adding insult to injury, there’s a penalty when that happens.

5. Fees and penalties

There’s no shortage of ways for a credit card issuer to make money off you. Common charges include fees for transactions, such as balance transfers and cash advances, or for asking to increase your credit limit or make a payment by phone. There also are penalty charges for paying your bill late or going over your credit limit (they don’t decline your card; they just sock you with a fee for it).

Look for cards with reasonable fees. On balance transfers, for instance, look for offers with no transaction fees and 0% interest for at least 12 months. And don’t pay extra for rewards programs. There are plenty of card issuers who don’t charge extra for them.

“This is a crucial issue,” says Eric Tyson, author of “Personal Finance for Dummies.” “You might not intend to carry a balance. But before you agree to accept a card, understand all the terms and conditions because your situation might change … Stay away from ones with exorbitant fees and high late fees, even if the other features seem relatively attractive.”

6. Incentives

Many rewards cards offer sign-up bonuses if you meet a certain spending threshold within a few months. Some even offer additional bonuses if you keep spending at a high level over the ensuing months. And rewards and cash back bonus categories can boost your savings in the areas in which you routinely spend the most — whether it be groceries, dining at restaurants, streaming services, gas and more.

Look for a program that offers flexibility, such as cash or travel, and rewards you’ll actually use, that are easily earned and redeemed. And find out if your rewards expire, or if there are any limitations on how many points you can earn or must earn in order to redeem them.

Updated: March 25, 2020

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

Credit Card Rate Report Updated: November 25th, 2020
Business
13.91%
Airline
15.50%
Cash Back
15.85%
Reward
15.75%
Student
16.12%

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