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We’re definitely not going to tell you that credit cards are useless. Most people will choose to carry credit cards instead of cash.
According to Experian Data, the average, Americans hold an average of 3.84 credit card:
But this can become a problem, if you’re not careful. It’s very easy to pay for things with a credit card, and that’s why you need to know how to choose the right one, before you get into trouble.
Here are the top factors to consider when choosing a new card:
The first thing you should look at is the most important one.
It’s also one of the easiest ways you can compare different cards. Your APR or Annual Percentage Rate, is the interest rate that you pay every year. But beware that things are not always what they appear.
You could have an introductory rate or a changing rate based on your balance. You’ll also have different types of rates that will apply to your credit card, based on what you use it for.
Another thing to keep in mind is the fact that your balance could change daily.
Your interest is then calculated based on your average balance. That means they take the total balance at the end of every day for the month and then divide it by the days in the statement cycle.
That’s how much you’re going to owe money on. When it comes to your yearly interest you’re going to pay that for each month.
If you can find credit cards with the lowest APR you’re going to have the lowest interest.
But you need to make sure you know what you’re getting. You’ll find that most banks change the APR they offer based on the credit score of the person applying.
That means you may want to look closer at fixed rate cards, unless you know you have great credit.
Your credit score can influence not only your credit card rate, but also your available credit limit. This chart using Experian data shows the average credit card debt by credit score. It shows that those with an average to good credit score have the highest amount of credit card debt.
Rewards cards can be great because you get all sorts of benefits and bonuses.
If you know how to use them right and you don’t get caught up in the problems, you can earn a lot. But you also need something that fits the way you do your shopping.
Make sure that you’re getting rewards in an area that you’ll actually use them.
If you’re the type who travels a lot you’re going to want a card that focuses on bonus points in the airline travel and hotel space. That’s where you’re going to get the most reward.
For someone who doesn’t really spend much time behind the wheel, however, a gas rewards card isn’t going to be a great pick. Maybe your best option would be something that rewards groceries or that gives you cash back on your next fancy meal out.
Think about what you want your credit card to do for you and start from there.
Maybe it’s the rewards that you’re looking for. Or maybe you’re looking to use a balance transfer to help you with debt. Make sure your lifestyle is going to fit the card that you’re looking at.
Of course, you don’t have to limit yourself strictly to a rewards card. You can also choose a cash back card that will get you more options.
After all, a cash back card is going to let you spend that money any way that you want to.
The best thing you can do is pay off your credit card every month and if you do that, you won’t have to worry so much about interest.
It’s really great to go this way because it’s going to help you build up your credit rating and you can even lower your interest (without having to pay it) because of that.
On the other hand, you’re going to have fees issued by your credit card company.
What’s good about this however, is that they all list the fees out plainly and they usually make them simple to find too.
So take a look at some of the fees that are important to compare from one card to another.
- Annual Fee – If you have a card with an annual fee it means that you pay them a set amount every single year just for the privilege of being able to use the card. These cards usually have more benefits, but that doesn’t mean they’re going to outweigh the cost of the fee. Keep in mind that not every card has these, but a lot of secured, premium and subprime cards do.
- Balance Transfer Fee – If you transfer a balance from a different card onto this new card you’re going to have to pay a fee for that privilege. It’s usually a percentage of the amount that you transfer, which could be 3% or a flat $5 (usually the larger of the two). Don't afraid to negotiate if you know it can be useful for you.
- Cash Advance Fee – Beware of this one because sometimes things you don’t think would be cash advances can count. You’ll get this fee if you make a cash advance directly, if you overdraw your account if you use a credit card convenience check and several other things that are considered equivalent.
- Foreign Transaction Fee – If you buy something in another country or something that’s in foreign currency you’ll be charged this fee. Note that either of these things could be possible. That means if you pay for something in a different currency even while in the United States you could pay this fee.
You’ll want to look at each of these different fees on any card you consider. You want to know what they mean and when they occur. Plus, you want to know if the APR and the fees are related in any way.
When choosing a credit card, one of the things you need to consider is the free structure. In this chart compiled with creditcards.com data, we can see that late payment fees are the most common type of fee. This is followed by cash advance fees. At the other end of the scale, we can now see that over limit fees and annual fees are far less common. This highlights the importance of making payments on time, which can not only save on fees but help you to establish a solid credit history.
4. Credit Limit
You want a credit limit that’s going to give you at least a bit of wiggle room, but you definitely don’t want to find yourself in trouble.
If you’re just starting out with credit you may want to opt for a low-limit. As you start making more you can start to consider a higher limit on a card. Keep in mind that a higher limit is going to help your score over time by keeping your spending at a lower utilization rate.
Make sure you’re aware of your own limits, however.
If you’re not the type to be extremely responsible with the card you have you definitely don’t want one that’s going to give you a high limit or something you can’t pay.
How Do I Choose?
Many consumers are naturally curious in which credit cards provide the best value for their money, as well as which credit cards can best assist them in managing their finances and making long-term plans.
It would be fantastic if there was a single credit card that could assist everyone in managing their finances, with perks tailored to their specific needs.
There's only one problem: there's no such thing as a perfect credit card for every circumstance.
Credit cards are made to be used in a variety of settings. That means that, regardless of your situation, there is undoubtedly a decent credit card for you, but the greatest credit card for you will not be the same as the best credit card for someone else.
Here are some things to think about while picking a credit card.
- Why are you looking for a credit card? Are you looking for a solution to keep track of your monthly expenses? Do you need to improve your credit score? Do you want to learn how to manage your money and create a credit history as a college student? Are you a regular traveler looking for a credit card that will help you save money on your next trip?
- What is your credit score right now? Your credit score may have an impact on the best credit card for you. The higher your credit, the more likely you are to be approved for cards that offer stronger rewards programs and additional benefits to cardholders.
- Do you have a family of your own? If you have a family, particularly children, you may require a different type of credit card than if you are single or want a business-use card. Obtaining a card that provides discounts on groceries, household goods, and other items can significantly reduce your family's spending.
This move could be attributed to the increasingly competitive credit card business, where card issuers are providing ever more incentives to keep their clients. On the other side, it could be due to customers relying on alternative forms of financing rather than credit cards.
When it comes to finding a decent credit card, there are a lot of other factors to consider, such as the type of rewards program you want and whether you're a high or low spender, but those three questions will help you narrow down your possibilities.
What Is The Best Credit Card?
With so many different cards to choose from it can be difficult.
Using all of this information to make your comparison, however, should definitely help you along the way.
- Low-Interest Card – Get this card if you want to be able to finance a purchase for more than a single month. You’ll get lower interest payments, especially if you can get an introductory offer for a special rate. Just make sure that the rate you get after the introductory period isn’t high.
- Balance Transfer Card – Get balance transfer card if you have debt on a high-interest card that you want to transfer. It can help you save some money on interest and make sure that you’re paying the card off even faster.
- Zero Annual Fee Card – Get no annual fee card if you are only going to use the card occasionally and if you’re going to pay it off every month. You might get higher interest, but you’re not going to have the fees that you would otherwise.
- Rewards Card – Get a rewards card if you’re going to spend a lot on your credit card anyway and you want to make sure you’re getting the full benefits. This type of card is going to help you get points and cash back so you can do more of the things you want.
There are so many websites out there that help you to compare all of this information and a whole lot more.
That means there’s really no reason for you to end up with a card that doesn’t fit your needs or your lifestyle. You just need to make sure you look at what you need and then at the sites that can help you find it.
1-5% 5% cashback on up to $1,500 in rotating category purchases each quarter when you activate the bonus category (then 1%), as well 1% percent cash back on all other purchases
Rotating Categories, Cash Back
1% – 5% 5% cash back on your first $2,000 in combined eligible purchases each quarter on two categories you choose, 2% cash back on one everyday category, like gas stations, grocery stores or restaurants, 1% cash back on all other eligible purchases
Cashback, 0% Intro
1.5% – 5% 5% on travel purchased through Chase Ultimate Rewards, 3% on dining at restaurants, including takeout and eligible delivery services, 3% on drugstore purchases and 1.5% cash back on all purchases
No Annual Fee, 0% Intro
1-6% 6% cash back at U.S. supermarkets (up to $6,000 per year in purchases, then 1%) and selected U.S. streaming subscriptions, 3% cash back on transit and U.S. gas stations, 1% cash back on other purchases
1-5% 5% at Amazon.com and Whole Foods Market, 2% cash back on restaurant, gas, and drugstores, 1% cash back on all other purchases
$0 ($139 per year Amazon Prime Membership Fee required)
2X – 5X 5x total points on travel purchased through Chase Ultimate Rewards, 3x points on dining and online grocery purchases and 2x on other travel purchases. Plus, earn 1 point per dollar spent on all other purchases
2%* 2% cash back rewards rate – 1% every time you swipe and another 1% upon payment.
Flat Rate Cashback, 0% Intro
1% – 4% unlimited 4% cash back on dining, entertainment, and popular streaming services, 3% at grocery stores and 1% on all other purchases.
CashBack, 0% Intro
With so many credit cards to choose from it can be difficult to find the right one.
That’s why the information we’ve provided above is so important. It will help you figure out which one is right for you, so you’re ready to go when you need to use it.
For anyone that has questions make sure you talk with the company before you decide to sign on that dotted line. You want to make sure you’re getting exactly what you expect.