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How to Choose the Right Credit Card
Credit cards remain in wide use, as consumer continue to embrace the plastic payment experience.
According to Shift Processing, 1.06 billion credit cards are in use in the United States of America, while 2.8 billion credit cards are used worldwide. Additionally, about 70% of American adults own a credit card.
Still, not every financial consumer has mastered the credit card experience. That process begins with choosing the right credit card – and that means knowing exactly what credit card is unique to your financial needs.
“Your credit card should fit and benefit your lifestyle,” said Melanie Musson is a financial expert with California-based Loans.org. “If you are an avid traveler and are partial to a particular airline, their credit card might be a good fit. You’ll likely earn miles for every dollar your spend, and airline credit cards usually come with perks like free checked luggage and priority boarding.”
“If you eat out a lot, you should try to find a credit card that offers three percent or higher rewards on dining out,” Musson added. “If you frequently participate in a specific activity, try to find a credit card that rewards that activity.”
Steps to Take to Secure the Best Credit Card For You
Getting the right credit card isn’t easy – but it’s doable. Take these action steps to land the perfect credit card for you.
What problems should the card solve? Job one is knowing the factors involved in choosing the right credit card. Basically, you’re asking what problems the credit card solves.
According to Alex Miller, founder and chief executive officer at UpgradedPoints.com, your best bet is to choose a card based on the following factors:
• What rewards or benefits does the card provide? Lounge access? Frequent flyer miles? Statement credits?
• What are the financials of the card? Does it have a low APR? Is it a charge card/credit card?
• Who is the card issuer? How reputable are they? Do you have a banking relationship ship with them?
“It’s important to find reviews of the cards so you can see if you’ll find use out of the card in everyday life,” Miller said.
Know what types of credit cards are available. Credit cards come in a variety of models, and often with different benefits. Miller advises focusing on these categories of cards.
- Single currency travel rewards cards. These cards earn a specific set of frequent flyer miles or hotel points
- Transferable currency travel rewards cards. These cards earn a currency that can be transferred into multiple partners (examples include Amex Membership Rewards, Chase Ultimate Rewards, and Citi ThankYou).
- Travel Perks cards. These cards have tangible travel benefits such as travel credits, lounge access, free checked bags, or preferred seating credits, among other features.
- Balance Transfer cards. Balance transfer cards are useful if you’re transferring a high balance from another credit card.
- Charge cards. These cards (think American Express) must be paid off every month. Charge cards differ from credit card, which have a revolving balance.
- Store credit cards. These cards are tied to a specific merchant or company (for example, Amazon, Home Depot and Walmart, and myriad other retailers offer store credit cards.)
Check your credit score before applying. Your next step as a credit card hunter is to check your credit score. “If you have had a credit card in the past or have a car loan or a mortgage, you will have a history of paying your bills,” said Aviva Pinto, managing director at Wealthspire Advisors in New York, N.Y. “That will determine your credit score.”
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Federal law entitles you to one free copy of your credit report from each of the three major bureaus every 12 months. “You can get free reports at AnnualCreditReport.com, a federally authorized site,” Pinto said.
Choose a card with a reasonable interest rate. “You may find a card that seems like a perfect match, but your benefits will be outweighed by what you pay in interest if your interest rate is exceptionally high,” Musson said.
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Compare benefits. If the interest rate is good, start comparing the card benefits, Musson said. “For example, if you rent a car often, you should use a credit card that offers rental car insurance as one of its perks.
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Ask these questions when you start bearing down in your credit card search; Will this card help me build my credit? Look for a card that reports your credit card payments to the three major credit bureaus. Many secured cards don’t do this.
- How much is the annual fee? Unless you have very poor credit, look for cards with low annual fees.
- Can I move up to a better card later on? Choose a card that will let you build your credit and upgrade to a card with more competitive terms.
- If you get a 0% card, find out how long the 0% lasts and what the interest will be when the 0% expires. “Look for a card that gives you enough time to pay off your debt interest-free,” Miller said. “If you’re planning on carrying balances over several years, consider a credit card with lower rates.”
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Once You Have Your Credit Card – Use It Wisely
When you land the credit card that works best for you, learn to use it prudently and effectively. Pinto offers these smart card user tips.
- Don’t just go into every store and use your credit card to buy whatever you want whenever you want it.
- Carefully monitor your spending so that you don’t find yourself with a HUGE balance at the end of the month that you cannot pay.
- If you’re trying to establish credit, pay your bill in full every month. Don’t carry balances and have to pay high interest rates.
- Credit can be an extremely useful tool – if it’s managed correctly. Making rash purchasing decisions can end up costing you, so it’s important to grasp the concepts and tools behind responsible credit practices as early on as possible.
- The credit card you choose should help you achieve your financial goals. “It should do so in the most affordable, efficient way possible, whether you’re trying to build credit, borrow money or earn rewards,” Pinto said.
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Brian O'Connell has been a finance writer at TheStreet, TheBalance, LendingTree, CBS, CNBC, WSJ, US News and others, where he shares his expertise in personal finance, credit and debt. A published author and former trader, his byline has appeared in dozens of top-tier national publications.