More than three quarters of U.S. consumers have at least one credit card, according to the Federal Reserve. And more Americans are forgoing cash in their daily transactions; almost one in three adults does not use physical currency in a typical week. That’s from a 2018 survey by the Pew Research Center, and the trend has accelerated during the coronavirus pandemic, since people are wary of handling unsanitary cash.
So you might be in the market for a credit card — and you might be asking yourself, “What credit card should I get?”
First of all, there’s no such thing as the best credit card; there’s only the best credit 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, there are some card features you should be aware of before you apply for any card.
Check Your Credit Score
First, check your credit score. Knowing what your credit score is will help you better understand what types of cards and offers you might be eligible for. The higher your credit score, the more it is likely that you will be approved for cards offering high-level perks and rewards.
When you apply for a credit card, the issuer makes a so-called hard inquiry on your credit report to determine your creditworthiness. Unlike a “soft inquiry,” this can have a negative effect on your credit score, lowering it by about five points. That, however, is temporary.
Your credit score comes into play when you buy or rent a home, finance a car, apply for any type of credit 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 think you’ll be approved and you know that you’ll use it.
Getting the right credit card can also help you build credit history, which is a major factor in your credit score. It can also get you started on a credit card strategy, especially if you want to start off small with a no-annual-fee or cashback credit card and progress to higher-tier cards.
“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.”
In my own personal experience, I started off with the Amex EveryDay® Credit Card* to build up credit history in my own name before applying for travel rewards cards requiring a high credit score (and charging high fees), such as the Chase Sapphire Reserve® or The Platinum Card® from American Express.
Showing 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.
How Will You Use the Card?
Arguably the most important factor in determining which card you get is understanding how the card will reward you for your spending.
You may get points, which you can redeem for travel or other credits; you may get airline miles; or you may get cash back so you save immediately on your purchases.
Some credit cards will earn you bonus points on various spending categories, including dining, groceries, travel, airfare, hotels and more. If you’re considering getting a card that earns you rewards that can be used for travel, it’s important to choose one that gives you bonus points for the things you spend the most on; that will maximize your earnings. 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 earn you cash back on everyday purchases, such as gas or groceries, and even on online shopping or Amazon purchases.
We recommend taking a look at your 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.
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 travel rewards card that earns points you can use for travel, not paying your bills in full could essentially negate any rewards you do end up earning.
Of course, we know this is not always feasible for many and there are times where carrying a balance is unavoidable. If you’re considering getting a credit card knowing you might be carrying a balance from time to time, it’s definitely worth looking into cards that carry a low interest rate.
Credit cards have what’s known as a credit limit, or the maximum amount of money you can spend on that card. They differ from charge cards in that respect, since charge cards do not have a credit limit.
Your credit limit is determined by the credit card issuer for any given card. 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.
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. You can even get credit to shop at Saks Fifth Avenue.
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 may not be attractive while much of the world has paused or reduced travel during the coronavirus pandemic, but dining credits could be far more interesting.
“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 what’s called 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.
This is where it is 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.
Choosing a credit card is a highly personal decision; your lifestyle and goals should play a major part in it. You should weigh accurately all factors before you apply, especially if it’s your first time getting a credit card.
*All information about the Amex EveryDay Credit Card has been collected independently by NextAdvisor and has not been reviewed by the issuer.
For rates and fees of the American Express Gold Card, click here