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Getting a credit card can be a complicated process, especially if you don’t know how to choose the right credit card.
Choosing the right credit card — one that fits your specific situation — can have a tremendous impact on your budget and financial well-being. The right choice can end up saving you hundreds (or even thousands) of dollars annually.
Here we'll walk you through several parameters and questions to help you navigate through the sea of card offers so you can apply for the right credit card for you.
How to choose the right credit card
The first step in choosing a credit card is identifying the exact type you need. Credit cards are like any other tool — you should get them with a purpose in mind. You wouldn't buy an electric drill if your plan was to plant tomatoes in your home garden — and credit cards operate on the same principle.
First, take inventory of your current financial habits and needs, then decide whether you need:
- A rewards or non-rewards credit card
- A card that facilitates balance transfers
- A card with no annual fee
- Other card features relevant to your personal spending habits
What credit card should I get?
The credit card you should get will depend on what your needs are. For example, if you're interested in getting a rewards credit card that you plan to use for everyday purchases, the Blue Cash Preferred® Card from American Express is a great option. Or if you're new to credit or have a damaged credit score, consider the Discover it® Secured Credit Card to help you build or rebuild a positive line of credit. The table below outlines more credit card features and our choice for each type of card.
Type of credit card to get
Best credit card to get
|Excellent credit||Rewards credit card||Chase Sapphire Preferred® Card|
|Bad credit or new to credit||Secured credit card||Discover it® Secured Credit Card|
|College students||Student credit card||Discover it® Student Cash Back|
|Everyday purchases||Rewards credit card||Blue Cash Preferred® Card from American Express|
|If you have credit card debt||Balance transfer credit card||Citi® Diamond Preferred® Card|
|Carrying a balance||0% intro APR credit card||Wells Fargo Platinum card|
|Business owners||Business rewards card||Capital One Spark Cash for Business|
Can you fully pay off purchases at the end of the month?
You’ll need to ask yourself this question to determine the first step in choosing a credit card. If your answer is anything but "yes," look for either low interest credit cards or balance transfer credit cards when choosing what credit card to get.
In the broadest sense, credit cards can be categorized into two groups — those that earn rewards and those that don't. If you carry a balance on your card month-to-month, you shouldn’t be thinking about a rewards card at all when deciding what credit card to apply for. This is because any rewards you might earn will more than likely be eaten away by interest — especially since rewards cards also tend to come with higher APRs.
Choosing between rewards credit cards
If you never carry a balance, a rewards card can be a great choice when deciding which credit card to use. All credit cards of this type reward you with a prize or rebate for every dollar charged to them.
The rates at which you earn rewards will usually differ by merchant, and a select group of cards will offer a fixed rate anywhere you shop. The challenge is to pick a credit card that lines up well with where you shop and spend most of your money.
The three main types of rewards credit cards are cashback, co-branded and general travel rewards.
Here’s what you need to know about each type:
These tend to offer the simplest rewards systems and provide the lowest returns on each dollar spent. For every purchase you make using a card like this, you’ll receive some percentage of the total back, often in the form of a statement credit that you can then use to pay down your bill. In some cases, you can also receive a check or direct deposit for the amount of rewards you collected.
Co-branded credit cards
Some cards are partnered with a specific airline, hotel or store. The best co-branded credit cards usually come with additional perks and features that are great for customers who shop with their affiliated brand.
For example, some airline credit cards may give you:
- Priority boarding privileges
- Access to airline lounges
- A free checked bag
Travel credit cards offer the best of both worlds. Travel cards typically give you reward points that can be redeemed in a number of different ways, including statement credits (like a cashback credit card) or via transfer to airlines or hotels, similar to co-branded cards. It’s up to you to decide which of these credit card features would be best for your redemption preferences. In terms of value, these cards sit somewhere in the middle between co-branded and cashback cards.
Choosing between low interest credit cards
If you need to carry a balance month-to-month, your best bet will be looking for credit cards that minimize the interest you pay. If you don't pay your balance in full from time to time, you can still probably profit off a reward credit card. However, if carrying a balance is something that you do more often than not, these are the types of cards you’ll want to get. There are two main types of low interest credit cards — general low interest cards and balance transfer cards.
Balance transfer credit cards are intended for those who are already dealing with credit card debt, and wish to pay it down quicker. This type of credit card works by allowing you to move outstanding balances from other card accounts to this one. A balance transfer credit card will waive interest fees for the first few months the account is opened, allowing you to apply the full amount of your monthly payments towards the principal balance. Such a strategy will typically lead to paying down a loan much faster.
Over a 24 month period, for example, an individual with a $10,000 balance and 15% APR, making $500 monthly payments can save $1,481.34 in interest by using a 15 month balance transfer card with the same APR.
Low interest credit cards
These cards provide low interest while the account is open. In some cases, low interest credit cards will come with 0% promotional interest rates for purchases and sometimes even for balance transfers, too.
Choosing the right credit card: When does paying the annual fee make sense?
The answer to whether or not you should get a card with an annual fee will almost always come down to net value. If by paying the annual fee you receive a significant boost to the value you get from the card, it can be worth the extra investment on your part.
Example rewards rate calculation
For example, let's say a card awards 2X points on every purchase, and has a $99 annual fee (waived in the first year). The card also has a 40,000-point bonus for those who can spend $3,000 within the first three months of account opening.
Let's say we spend $1,000 per month on things we can charge to our example credit card. That adds up to $12,000 in spending for the year, earning us 24,000 points (12 x $1,000), plus 40,000 bonus points. Let's also assume that these points can be used for travel statement credits at a rate of 1 point per $0.01.
Year one rewards rate: After spending $12,000, we end up with a net value of $640 (64,000 miles x $0.01). A rewards rate of $640 ÷ $12,000 = 5.3%
Year two rewards rate: We have no bonus and an annual fee kicks in. Our total value is ($240 - $99) ÷ $12,000 = 1.2%
Generally speaking, reward cards and secured credit cards will usually be the only credit cards to charge annual fees. For non-reward and low interest credit cards, paying an annual fee makes little sense, since your aim with those products is to maximize savings — paying a fixed fee on top of the card wouldn't be conducive to that goal.
To figure out if an annual fee is worthwhile:
- Take the total amount of money you spend within a year that could be charged to the credit card you're considering
- Estimate the total value of rewards you would earn by charging the purchases from step 1 on the card
- Subtract the annual fee from that value
- Divide the result by the total amount of spending from step 1, and multiply by 100 to get a percentage
The final figure is what we call the "rewards rate." If this rate is below 1%, you’ll probably be better off choosing a no-annual-fee card — though you should always compare the rewards rate against other options, to see what the best deal would be for your spending habits and needs.
How credit score affects your credit card choice
Credit scores are one of the biggest limiting factors in choosing what credit card you should apply for. If your FICO Score isn't high enough, you’ll be instantly denied a wide range of products.
For example, the Chase Sapphire Preferred® Card is one of the best credit cards, but also requires you to have Excellent credit — a score of at least 700 or better.
No matter what your credit score is, though, your credit card options will still boil down to the same card categories we’ve outlined above — rewards cards versus low interest cards. The only thing that changes is your pool of options — the lower your score, the fewer cards you’ll likely get approved for.
Secured credit cards
Secured credit cards are a special subset of card products intended for those with limited or damaged credit histories. If you've never had an open line of credit or have defaulted on a loan in the past, this may be the option to look for.
In order to open a secured credit card account, individuals are required to put down a security deposit that will double as their line of credit. These cards are intended to be a temporary option that allows users to build up their credit history. Once your score bounces back to being Average Credit Score in America: 2021 Report, you’ll be able to apply for a better card that doesn't require a deposit.
Before applying for a secured credit card, double check with the issuer to make sure they report your positive credit behavior to one (if not all) of the three major credit bureaus: Experian, Equifax or TransUnion.
What credit card should I get?
If you’re wondering what credit card you should apply for, you’ll need to consider your personal preferences, spending habits and credit score. With so many cards out there to choose from, it’s important to first narrow your search and decide which credit card features would be best for you. If you travel frequently, consider a travel rewards card. If you’re just starting out and have never had a credit card before, look into getting a secured credit card.
What credit card should I get to build credit?
A secured credit card is an excellent option for someone who wants to build their credit. Secured cards require a down payment which will act as the credit limit on your card until you establish a proven history of paying your balance on time and in full. In particular, the Discover it® Secured Credit Card is a great option, as it also allows you to earn rewards.
Does it matter which credit card you get?
Yes, it matters which credit card you get. Getting the right credit card for your spending habits and financial capabilities can end up saving you hundreds or even thousands of dollars a year. For example, if you don’t typically pay off your balance in full every month, you may find yourself in serious debt if you choose a credit card that has a high interest rate.
How to choose the right credit card?
How to decide which credit card to use will depend on several personal factors. Do you pay off your balance on time and in full every month? Do you typically carry a balance? Do you want to take advantage of credit card rewards? How is your credit? Once you’ve answered these questions, it’ll make narrowing your search process much simpler, which will lead you to choosing the right credit card for your needs.
Should I sign up for a credit card?
You should definitely sign up for a credit card if you feel confident that you can pay off your monthly balance on time and in full to avoid getting yourself into interest rate-induced debt. It’s also a good idea to sign up for a credit card if you’re looking to build up your credit — just make sure you’re financially responsible once you get one.
The information related to Discover it® Secured Credit Card and Discover it® Student Cash Back has been independently collected by ValuePenguin and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply to American Express credit card offers. See americanexpress.com for more information.