With hundreds of cards on the market, there is no one-size-fits-all credit card. Which credit card you should get depends on several factors unique to you, your needs and your credit history. Don't apply for the first card that comes your way; doing some research and finding a card that best serves your needs will save you a lot of money in the long run.
Check Your Financial Health
The credit cards offering the best rates, most generous rewards and benefits typically require the highest credit scores—the number lenders look at when deciding whether to extend you credit. Before you apply for any cards, check your credit scores and credit reports so you know where you stand.
You can get your FICO® Score through Experian CreditWorks tool.
Once you know your scores, see where you stand:
|Rating||FICO Score Range|
|Poor||579 and below|
If your score isn't as high as you would like it to be, figure out what's dragging it down. Since your score is based on information in your credit report, start by reviewing your credit reports from the three credit bureaus—you are entitled, by law, to receive a free report from each bureau every 12 months on annualcreditreport.com. You can also get your free Experian credit report here on Experian.com. Look for any errors or discrepancies that can be corrected to boost your scores.
When you receive your scores, you'll also get information about why the number is where it is. This information will help you understand what actions you can take—like paying your bills on time or reducing the amount of credit you use—to improve your scores.
Ask Yourself What Kind of Card You Need
All credit cards are not created equal—and neither are their functions. There are three general categories of credit cards:
- Cards that help save you money on interest
- Cards that help you improve a damaged or limited credit history
- Cards that help you earn rewards
1. Low Interest Credit Cards
The first category—cards that help you save money on interest—are best for users who are trying to pay down a balance or plan to carry a balance occasionally. If you're about to make a big purchase, you might want to look for a card that offers an introductory 0% APR and an ongoing low interest rate.
You could also look for a card with a good balance-transfer offer if you're trying to pay off a high-interest debt at a lower rate. Generally, the better your credit, the lower rates you will be eligible for when looking for such cards.
2. Credit Cards for Building Credit
There are cards specifically for students who are new to credit, and there are also secured credit cards, which typically require a security deposit to open the account. With a secured card, once you have built up a history with the card, you can close the account or upgrade it to another product, at which time your deposit is returned to you.
3. Rewards Credit Cards
The third category—cards that help you earn rewards—are best suited for users who pay their balances off every month. That's because these credit cards typically come with higher interest rates that will wipe out the benefits of rewards if you carry a balance.
Some of these cards also come with an annual fee, which you need to consider when applying. If you're looking for a rewards card, consider which type is best for you: travel or cash back. You should also look for a card that offers the best sign-up bonus.
Investigate the Details
Once you have narrowed down which kind of credit card you are looking for, consider your specific needs and how they correlate to the specific terms of various cards.
Low Interest Cards
If you are looking for a low-interest card, make sure you know how long the low-interest offer lasts. Some cards may offer an introductory 0% offer a fixed period of time, like six or 12 months, after which the interest rate jumps considerably.
Be certain you can fully pay off your purchase or balance transfer during that period. If you can't, you may want to consider a card with a slightly higher introductory rate over a longer period of time.
When considering a secured credit card, make sure it actually reports your information to the three major credit bureaus. That's crucial to building your credit history.
Some secured cards don't actually do that—which won't help you improve your credit in the long run. You should also make sure you can graduate with a better card once you have built some history with a secured card.
When choosing a rewards card, think about where you spend your money the most, and how you want to reap your rewards. For example, if you travel a lot, you might want a card that gives you more points on airline and hotel purchases. If you typically charge household expenses like groceries and gas, you should look for cards that offer better points on such purchases.
The type of rewards matter, too. Some users prefer cash back that they can receive as a check or statement credit, while others want to use points to buy flights and other travel purchases. Don't forget the factor in the cost of the annual fee.
Consider the Small Differences
When making your final decision, pay attention to the small differences between cards.
For example, when choosing between rewards cards, consider how much money the cards require you to spend before granting you a sign-up bonus. Some cards may require you to spend several thousand dollars in the first few months of owning the card before depositing the bonus. Make sure you can easily meet that threshold with your normal spending.
On low-interest cards, investigate the costs of late fees or whether the lender institutes a penalty APR—an increase in your interest rate if you miss or make a late payment.
If you are looking at a secured card that requires a deposit, find out whether the money will earn interest while it's with the lender.
Don't Apply for Too Many Cards
Once you have narrowed down your choices, be sure to only apply for the one or two that are right for you. That's because your credit scores take a small hit every time you apply for new credit. You don't want to unnecessarily damage your scores by going on an application spree.
And once you have your card, make sure you pay your bills on time—that's probably the best thing you can do to keep your scores in good standing and become eligible for even better cards down the road.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer, or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.