How to Choose a Credit Card in 4 Steps

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Credit cards are helpful financial tools for building credit, earning rewards, and paying down debt. But if you’ve never owned a credit card, it can be difficult to know how to get one or how to begin choosing the best card for you.  

Choosing a credit card is a personal decision that should be tailored to your individual spending habits, and to your goals — whether that’s racking up points and miles for travel or earning cash back on your everyday purchases.

And most importantly, you should put your spending on a credit card only to buy things you could afford with cash — and that you can pay off without carrying a balance, which accrues high interest.  

“The golden rule of credit cards is to spend responsibly,” says Zach Griff, a card expert who’s a writer and travel analyst at travel site The Points Guy. “Try not to carry a balance or spend beyond your means.” (The Points Guy shares an owner with NextAdvisor.) 

So before you jump in, here are some tips for how to choose a credit card that’s right for you.

What Should You Look for in a Credit Card?

The details you should look for in a new credit card largely depend on what your goals are. 

For instance, if you want to maximize bonus rewards on everyday spending or start earning toward your next vacation, you should look for rewards programs that fit your spending. On the other hand, if you have existing credit card debt to pay off, consider a balance transfer card with an introductory 0% APR. Or, if you have poor credit and want to build your score to a good or excellent credit standing, you might benefit most from a secured credit card (or even unsecured card option for bad credit) that can help you build good credit.

There are a few steps that you should take before applying, which can help you choose a credit card that not only is a good fit for your goals, but also offers best chances of approval. Here’s where to start: 

  • Check your credit score. 
  • Think about how you’ll use the credit card. 
  • Determine your interest rate and monthly costs. 
  • Shop around for the best card for you. 

1. Check your credit score

First, check your credit score. Knowing your credit score — as well as becoming familiar with the information on your credit report — will help you better understand what types of credit card offers you might be eligible for. 

You can typically access your credit score free through your bank account or account with another financial institution. And you can access a free copy of your credit report once per year from each of the three major credit bureaus — Experian, Equifax, and TransUnion.

The higher your credit score, the more it is likely that you will be approved for cards offering great sign-up bonuses, rewards, and other benefits.   

When you apply for a new card, the card issuer will make hard inquiry on your credit report to determine your creditworthiness. This can have a temporary negative effect on your credit rating, which is why it’s important not to apply for several lines of credit within a short time period.  

Your credit score impacts your ability to buy or rent a home, finance a car, apply for new credit accounts or even sign up for a mobile phone contract — so keep that negative effect in mind when applying for a card. Apply for a card when you’re confident in your chances of approval and you know that you’ll use the new card account. 

“You want to start slowly to build your credit history,” Griff says. “It’s very hard to go from zero to 60 with your first few card applications.”

Showing credit card issuers that you can responsibly handle a credit card by paying your bills on time and not going over your credit limit will be essential in building your credit history down the line.

2. Think about how you’ll use the card

One of the most important things to consider when you choose a credit card is how the rewards, benefits, and cash rewards on everyday purchasesd any bonus categories align with your spending.

Some cards will earn you credit card rewards in varying categories, including dining, groceries, travel, airfare, hotels, and more. 

If you’re considering getting a card that earns you rewards within a rewards program for future travel, choose one with bonus categories for the things you spend the most on. For example, if you frequently spend money on going out to eat or ordering takeout, consider getting a card that earns bonus points on dining. Other cards will help you earn cash rewards on everyday purchases, such as gas or groceries, and even on online shopping or Amazon purchases.

Consider your budget and spending habits before narrowing down which credit card you pick. It’s important to find one that closely mirrors your spending habits and preferences so you can get the most value out of it.

Your budget can also be a factor in whether you should pay for a card with a yearly fee. A card’s annual fee is generally only worth the price when you can get more value from rewards than you pay in fees.

Rewards credit cards vs. cash back vs. balance transfers

Rewards and cash back cards are great options for maximizing the value on your spending, but not all credit cards are designed for rewards. Balance transfer credit cards are another popular option. They offer introductory 0% APR offers on transferred debt balances, which you can use to pay down your principal balance without accruing interest. 

If you’d like to earn rewards on your everyday purchases, a cash back or travel rewards credit card will offer rewards on bonus categories that you can fit to your spending. While a travel rewards credit cards will earn points or miles towards future trips, cash back cards earn a percentage back on purchases within certain categories. 

Some rewards credit cards come with an annual fee, and many have travel perks — such as no foreign transaction fees, travel credits, protections, and discounted travel. Cash back cards don’t typically have annual fees and may be one of three different card types: flat cash back, tiered bonus categories, or quarterly rotating cash back.  

But if you’re looking to pay off debt, a balance transfer card is a better option than any rewards-earning credit card. You can use it to pay down as much of your principal debt balance as possible while avoiding interest charges over the card’s introductory 0% APR period. Some of the best balance transfer card options today offer 0% APR for up to 21 months. Many balance transfer cards require good or excellent credit and may offer ongoing rewards you can use after your balance is paid in full. 

3. Determine the interest rate and monthly costs

One of the cardinal rules of credit cards is to pay your balance on time and in full every month. Especially if you have a rewards credit card or a card with an annual fee, not paying your bills in full could essentially negate any rewards you do end up earning — not to mention have an effect on your credit.

Before you apply, make sure you read the terms of your card agreement and understand the costs and fees you might be liable for if you carry a balance (your card’s interest rate), miss a payment, or have your payment returned. 

4. Shop around for the best card for you

Before you choose a credit card, compare multiple card offers to make sure you’re getting the best credit card for you. Card details to consider include sign-up bonuses, interest rates, annual fees, rewards programs, bonus categories, credit building opportunities, and more.

You’ll also want to make sure your credit score aligns with what the issuer is looking for. Some of the best rewards credit cards require excellent credit to get approved. If you have bad credit or you’re just starting to build credit, you may not qualify. In that case, it’s good to look for credit cards designed for building a better credit score, including secured credit cards.  

When you’ve narrowed down your top choices, only apply for one credit card at a time. Applying for multiple cards within a short time frame can negatively impact your credit. Some credit card companies also offer preapprovals, so you can see whether you have a good chance of qualifying before undergoing a hard credit check.

Key Terms to Know When Shopping for a Credit Card 

Credit Limit

When you apply for a credit card, your credit card issuer will extend you a credit limit — the maximum amount of money you can spend on that card. 

Your spending limit is determined by the credit card issuer for any given card. For any unsecured card, the factors that go into deciding how much the issuer will let you borrow include your credit score, income level, payment history, and more. The issuer will want a picture of your likelihood to repay debt.

If you open a secured card, the credit limit is generally determined by the amount of the security deposit you put down upon account opening. When you’re approved, you’ll receive a credit limit equal to the amount of the refundable security deposit.   

Fees

Because many cards — especially travel rewards cards — can come with annual fees, it’s important to do your research and make sure you’ll get your money’s worth.

For example, the American Express® Gold Card comes with a $250 annual fee (See Rates and Fees). For that fee, you get perks like up to a $120 annual dining statement credit (up to $10 per month) and up to $120 in Uber Cash on eligible U.S. Eats orders and rides (up to $10 in Uber Cash per month; Gold Card must be added to Uber app to receive this benefit), which nearly offset the fee almost by themselves, as well as 4x bonus points on restaurants, Uber Eats purchases, and groceries at U.S. supermarkets (on up to $25,000 per calendar year in U.S. supermarket purchases, then 1x). But if you don’t dine out or order takeout often, you likely would find more value out of a different card.

If you’re wondering which credit card to get, considering which cards have annual fees and what perks you get for those fees is a great place to start.

Rewards and Incentives

Many credit cards come with perks and benefits to help enhance your travels and your everyday life.

Those perks include access to airport lounges, travel credits, free nights at hotels, Uber credits, dining credits, refunds for applying for TSA PreCheck screening, and more. 

Most of those perk-heavy cards come with high annual membership fees, but the perks can offset the cost of the fee — if you use them. So it’s important to apply for a card offering benefits that you’ll know you’ll take advantage of. For example, lounge access, and TSA PreCheck or Global Entry credits may be appealing if you’re a frequent traveler. But dining credits could be far more interesting if you only plan to take one or two trips a year.  

“If you don’t take advantage of all the perks of your card, you’re leaving money on the table,” Griff says. “Be sure to do your research. Don’t just sign up for a card because it has $500 in travel benefits — make sure that you actually plan on using the benefits.”

A key point to consider when choosing a travel rewards card is: Who are the travel partners — such as airlines and hotels — of your potential credit card? If you want to fly Delta Air Lines on an upcoming trip, or you live in a city where most flights are on Delta, it’s a good idea to look into an American Express card, since you can transfer your Amex Membership Rewards points to Delta in the form of air miles. 

All major U.S. airlines also offer co-branded credit cards, which earn airline miles directly, instead of credit card points. Those co-branded cards also offer perks specific to the airline, like early boarding, free checked bags or lounge access. The downside is that air miles tend to be less valuable than credit card points, since they can not be transferred and are only good on the airline that issued them and its partners.   

Many travel rewards credit cards offer also a sign-up bonus or welcome offer. If you spend a certain amount of money in a given time from the moment you open the account, you’ll earn bonus points. These offers vary from card to card, and can earn a large number of points, so take a close look at what you could do with the bonus. But you must be sure that you can spend enough in the given time frame to meet the target.

Finally, it’s especially important to make sure you can pay your credit card bills on time, ideally in full, every month. Don’t spend more on a credit card than you would if you were using a debit card or cash, just in order to hit the sign-up bonus. The interest you pay on the balance you carry might well cancel the value of the bonus.  

Bottom Line

Choosing a credit card is a highly personal decision; your lifestyle and personal financial goals should play a major part in it. Before you apply for a new credit card, compare different offers and understand the interest rate, fees, benefits, and other card details, especially if it’s your first time getting a credit card.

For rates and fees of the American Express Gold Card, click here