Last Updated on January 18, 2022
When it comes to choosing a credit card, you have dozens of options. And while they may all seem the same on the surface, credit cards can actually vary a great deal from one to the next. Unless you perform some research and due diligence, you can’t be sure you’re getting the best card for your needs.
5 Tips for Choosing a Credit Card
Credit cards come with pros and cons. But used correctly, people experience far more advantages than risks. Whether you’re looking to secure your first credit card, or you simply want to add a new card into the mix, here’s how you can be sure you select the right option:
Ask Yourself, Why?
Credit cards may seem simple, but there are actually a variety of different card niches and purposes. There are credit cards for good credit, credit cards for bad credit, rewards cards that specialize in airline miles, cash back, or hotel points. There are balance transfer cards, no annual fee cards, prepaid cards, and secured credit cards.
You also have business credit cards and student credit cards. Then there are different card networks and issuers. Without some focus, it can be easy to feel overwhelmed by the options.
Start by asking yourself why you want a credit card. In other words, what are you hoping to get from it? This will at least eliminate certain types of cards and allow you to zero in on a few that may work in your situation.
Consider Introductory Offers
The credit card industry is highly competitive. To secure new customers, card issuers often use introductory offers as bait. These signup bonuses may include cash back (sometimes as much as $500 or more), free flights, or zero-percent interest. But because of how fast-paced this industry is, the rules and terms are always changing.
“Make sure you read the fine print and pay attention to what happens when the introductory offer ends, and that you can stick to the requirements,” CardGuru advises. “Otherwise, you might get hit with hidden fees and rates you didn’t see at first glance.”
Look at Interest Rates
All credit cards come with an interest rate. This is the percentage of interest that gets tacked onto any unpaid balances. And while there may be a zero-percent introductory rate, there’s always going to be a much higher standard rate.
Interest rates appear as the APR, or annual percentage rate. This may be a fixed-rate or variable-rate (which can change over time). The higher the percentage, the more you pay. Compare rates across the cards you’re considering to figure out which one offers the most favorable terms. If it’s a variable rate, dig in and figure out what that means in specific terms.
“Many variable interest rates start by using an index, such as the U.S. Prime Rate, and then add a margin. The result is the APR,” Better Money Habits explains. “Variable rates can change if the index changes, and some banks offer a non-variable APR as well.”
Review Rewards Programs
If a credit card’s rewards program is important to you, spend some time reading the fine print and figure out what the rules are. Do you have to pay an annual fee? How are points accumulated? Where can you use points? Are they immediately eligible for use? Details like these matter.
Determine Credit Limits
While it’s never a great idea to max out your credit card limit, there are scenarios in which it’s helpful to have a higher borrowing amount. Compare the credit limits on different cards and inquire about when you’re able to request credit limit increases.
Develop a Smart Credit Plan
It’s time for Americans to stop looking at credit cards as free money and view them as useful resources that can be leveraged in certain situations to gain an advantage.
As you look into getting a new credit card, now’s a good time to develop a smart credit plan that ensures you maximize the benefits of your new credit card, while downplaying the risks.
If you’re unsure of how to use credit cards responsibly, invest in education. There are plenty of online resources available to those who want to know more. Ignorance isn’t an option.