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Whether you’re looking for your first credit card or you already have several, it’s not always easy to figure out how to choose the right credit card. With so many options available, it can be overwhelming to determine which credit card suits your needs. Being armed with as much information as possible can clear up any confusion so you make an informed decision about the best credit card for you.
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How To Choose a Credit Card
When you’re choosing a new credit card, there are a few steps to take. First, check your credit score. If you have a low credit score, you may be denied for cards that require a good to excellent credit score. Consider cards designed for your credit rating to increase the chances of approval.
Next, familiarize yourself with the application or eligibility requirements for credit cards from different issuers. Some banks may deny you a credit card if you have too many new cards or a lot of recent inquiries on your credit report.
Finally, determine what you want from your new card:
- Making a large purchase. Then you’ll likely want a credit card that offers a low interest rate or 0% introductory APR so you can have more time to pay it off.
- Grocery purchases. A card that offers bonus rewards at supermarkets could be right for you.
- Travel benefits. If you want airport lounge access and travel protections, like trip delay insurance and baggage delay insurance, a card with extensive travel benefits may be your best bet.
Factors To Consider When Choosing a Credit Card
Welcome Bonuses
Many credit cards come with welcome bonuses to entice potential new customers. To qualify for the bonus, you typically need to spend a specified amount of money within a certain timeframe. Determine how much you can reasonably charge on a credit card each month. You’ll want to target the best and highest bonus you can qualify for based on your purchasing style.
Welcome offers can be in the form of travel rewards (like points or miles) or cash back (usually as a statement credit). Either option is beneficial, but make sure the welcome bonus is something you can easily earn and in your preferred rewards form.
Rewards
The most common credit card rewards are cash back, travel rewards (such as airline miles or hotel points) and flexible rewards. In general, the higher the annual fee, the more rewards you’ll earn—but there are plenty of excellent rewards cards with no annual fee.
If you’re having trouble deciding, you can always start with a cash-back credit card to earn rewards on every purchase and add another when you feel more comfortable navigating another rewards program.
Perks and Benefits
Benefits can vary depending on the type of credit card, so review the fine print carefully. Some cards have few perks, while others have a long list of benefits. Common benefits on all types of credit cards can include travel insurance protections, purchase protection, extended warranty, cellphone insurance and rental car insurance.
Co-branded credit cards tied to an airline or hotel rewards program, can include benefits like free checked bags or hotel elite status. And premium credit cards often include annual or monthly statement credits for certain travel or lifestyle purchases and airport lounge access.
Annual Fees
The annual fee is a fee charged every year you hold the card. Some cards have high annual fees and some have minimal or no annual fees. Typically, the higher the annual fee is, the more perks and benefits you receive to justify paying the high cost. Low- or no-annual fee cards tend to offer fewer perks.
If a card has a high annual fee, but the perks and/or welcome bonus are valuable to you, it can be worth signing up and paying the fee for at least the first year. After your initial year, reevaluate the card to decide if paying the annual fee provided the value you hoped for.
Interest Rates
If you plan to carry a balance or have a balance from an existing card to transfer, a card’s interest rate is of high importance. While every credit card comes with a short grace period, compounding interest can add to your balance and negate any reward you’ve earned.
Many cards offer 0% APR for purchases and balance transfers, but it’s wise to be aware of a card’s ongoing interest rate so you can strategize how to pay off your balances. Ideally, you should pay your balance in full each month.
Choosing Between Different Types of Credit Cards
There’s still one more piece of the puzzle: deciding between the various types of credit cards.
Travel Credit Cards
There are two types of travel credit cards: Cards that offer flexible travel rewards and co-branded cards as a result of an airline or hotel partnership. Flexible travel rewards programs, typically can be transferred to selected airline or hotel loyalty programs. You can also book travel directly through the rewards program portal or “pay with points” feature. With co-branded cards, your rewards earned are tied to one specific program.
When it comes to choosing a travel credit card, think about how you plan to use the rewards from that particular card. If you’re a frequent flier with a particular airline or almost always stay with the same hotel chain when traveling, it may be best to get a co-branded card for that program. If you want more options to redeem rewards through different programs, then choose a card that offers flexible, transferable points.
Cash-Back Cards
Cash-back credit cards are well-liked by many people for their simplicity in redeeming rewards. Typically, redemption options include a statement credit, direct deposit to your bank account or a check in the mail. Some cards offer a flat cash-back rate on all purchases, which is ideal if you don’t want to keep track of which card gets the most cash back at certain stores or select categories.
Other cards offer a higher cash-back rate on specific purchases, such as at supermarkets or restaurants and then 1% on all other purchases. If you find yourself spending significantly more money on certain types of purchases, it may be best to go with a card that rewards purchases in that category.
Balance Transfer Cards
If you have existing debt at a high interest rate, having a balance transfer credit card can come in handy. Transferring your balance to a new card with a low introductory promotional rate (many even offer 0% intro APR) can help you pay down your debt quicker because more of your payment goes toward the balance instead of interest.
When choosing a balance transfer card, you’ll want to review the APR, timeframe for the promotional rate and any balance transfer fees. A balance transfer card can be an especially good deal, if you can pay off the balance within the intro period. After that, you accrue interest at your regular APR, based on your creditworthiness.
Business Credit Cards
If you’re a business owner—whether you have a small side hustle or a big company—a business credit card can be a valuable spending tool. Having a business credit card allows you to keep your business expenses separate from your personal expenses and can provide easy expense tracking.
Business cards can offer rewards for spending in certain categories not found on personal credit cards, such as advertising, shipping and technology providers, and some cards have generous welcome bonuses.
Business credit cards can earn travel or cash-back rewards. If you qualify for a business card offering rewards, select a program that aligns with your needs.
Why Do I Keep Getting Denied a Credit Card?
Reasons include:
- Too many applications in a short period of time
- Credit score isn’t high enough
- Too many cards open
- Bad payment history
- Income may not be high enough to support another credit card
- Credit history is too new
- Application filled out incorrectly or missing information
- Credit report may have information that needs to be corrected
Bottom Line
Credit cards are useful for a variety of purposes: earning travel rewards and cash back, transferring debt to a lower interest rate or separating business spending. If you’ve been wondering how to choose a credit card, consider what purchases you plan to make and check your credit score, then review current welcome offers, rewards and benefits of a potential new card. For inspiration, check out our lists of the best credit cards and best business credit cards.
More Credit Card Resources
Frequently Asked Questions (FAQs)
How do I use a credit card for the first time?
The first step once you receive your credit card is to call the number on the card or log in to your account to activate it. It’s also a good idea to add your card to your phone’s digital wallet, so you’ll have access if you forget your wallet. If this card is with a new bank, set up a username and password via its app or website to track your purchases and get important notifications.
You may want to consider enrolling in autopay to ensure you never miss a payment.
How old do you have to be to get a credit card?
While the minimum age to open a credit card is 18, however you’ll need to show proof of income sufficient to cover your charges.
If you’re under 18 and want to get in the habit of using cards and developing positive habits, you can be added as an authorized user to a parent or guardian’s cards.
When should I get a credit card?
If you can charge within your means, it’s wise to get a card as early as possible, in order to start establishing a credit history. While you may qualify for a credit card at the age of 18, you might find it difficult.
In that case, you may want to consider student credit cards or secured credit cards, both of which may be easier to gain approval.
How do I get a business credit card?
If you have a registered business, such as an LLC or a corporation, you may be able to apply for a business credit card. Even if you’re just starting out or a sole proprietor, you can still apply. The requirements are remarkably similar to that of a personal credit card.
You’ll need to provide your personal details, as well as the business information like your business’ name, annual revenue, tax ID (if you have one) and other relevant business details.
