Today’s consumers are presented with a wide array of credit card choices – credit cards with low APR’s, rewards such as cash back or airline miles, gold cards, platinum cards – the list goes on! So, how do you choose the right credit card when there are so many features and options to choose from? Here are some factors to consider when choosing a credit card:
1.) Your Credit History
Your credit history is the most important factor in determining whether or not you’ll be approved for a credit card. If you have excellent credit, it’s likely you’ll be approved for any credit card offer you choose – and the options are limitless. But if your credit is less than perfect, or you have poor or no credit, you’ll have less options to choose from when picking a new card.
Platinum, Titanium, Gold, or Classic?
In the past, Platinum and Titanium cards were reserved for individuals with excellent credit, but in today’s credit card market, “platinum” status doesn’t mean much. Almost anyone can get approved for a Platinum card, but generally, people with lower credit scores are more likely to be approved for a Gold or Classic card. With increasing levels of status, cardholders get lower rates, higher limits and more benefits.
If You Have Limited or Poor Credit…
Unsecured credit cards are “traditional” forms of credit cards – your interest rate and credit line are based solely upon your credit history. Although unsecured credit cards are normally out of reach for people with poor or limited credit, some credit card issuers have unsecured offers designed specifically for people in these situations. While they tend to have higher rates and additional fees when compared to “standard” unsecured credit cards, these offers do not require security deposits and may help you build or improve your credit score over time.
Secured credit cards, on the other hand, require a security deposit for approval. These credit cards are available to almost anyone, regardless of credit history, because the security deposit guarantees your credit line. For example, if you deposit $300, you’ll receive a credit line of $300. This may not seem like a true line of credit, but the charges you make with a secured credit card will be reported to the three major credit bureaus; and timely payments will show a positive track record on your credit report. You can use this to your advantage to build, repair or improve your credit history over time.
Prepaid credit cards are available to almost anyone. They operate on a ‘pay as you go’ basis and offer the safety and convenience of plastic – without the hassle of carrying cash. Although some prepaid offers allow you to build / improve your credit score, most do not report your activity to the credit bureaus. Make sure you check first if this is your goal.
2.) Your Spending Habits
Consider how you’ll be using your new credit card. Will you pay off the balance in full each month, or will you carry a balance?
If you carry a balance each month, you can save the most money by choosing an offer with the lowest APR. But if you always pay your balance in full, you might be better off with a reward card instead. Although reward credit cards tend to have higher interest rates than standard cards, if you don’t carry a balance, you won’t pay any interest and you can earn lots of great perks.
Do you have existing credit card debt? A 0% interest credit card is a great option for saving money, allowing you to pay 0% for 12 months or more on your balance. This can lead to HUGE SAVINGS, especially with a large balance.
3.) Your Personal Interests
Do you prefer a specific brand or service, shop regularly at certain retail stores or travel extensively for business or pleasure? Most credit card issuers will reward you with extra incentives for your devoted service.
Travelers: If you’re a frequent traveler, there are a wide variety of offers designed just for you. Airline mile credit cards allow you to earn free air travel, hotel stays, rental cars and more. Plus, you’ll earn a wide range of exclusive travel benefits.
Shoppers: If you’re a shop-o-haulic, or prefer a certain retail store or brand, you can earn cash rebates when you make purchases. Cash back credit cards will allow you to earn cash on all purchases, and in some cases, increased incentives for purchases on certain products or at specific locations.
Drivers: If you do lots of driving, you may be able to lower your overall fuel costs with a gas rebate credit card.
Business Owners: Small business owners can take advantage of quick access to capital, simplified record keeping and exclusive rewards with a small business credit card.
Students: College students can build their credit and learn money management skills with a student credit card.
Before selecting a card, be sure you know which credit terms and conditions apply to the account. Consider the annual fee, finance charges, balance computation method, and whether or not there is a grace period for purchases. See our article about Important Credit Card Terms for more information on these and other important credit card disclosures.