Picking a new credit card can feel like a guessing game.
With so many credit providers clamoring to win the hearts of consumers, it can be daunting to try navigate which credit cards are a good fit for your wallet—and which are better avoided.
Fret not, as finding the answers to your credit card conundrum is easier than you might expect.
Which credit card should you get? Choosing a credit card is simply a matter of examining your priorities.
Before you can pick a particular credit card, you have to consider the primary purpose of your card.
Perhaps you’re looking for a first-time card to begin building credit or maybe you want a rewards card that will help you rack up airline miles. Whatever the answer, your credit card soulmate is out there—and we’re here to help you find it.
Use these steps to determine which credit card meets your needs. Let’s get started!
- Take a Look at Your Credit
- How to Choose a Credit Card: 5 Things to Keep in Mind
- How to Choose Credit Card Rewards
- Final Notes
Take a Look Your Credit
Before you can choose a new credit card, consider the state of your credit score.
What if I don’t have credit?
If you’ve got limited or no credit history, you may have a smaller pool of cards to pick from—but don’t despair! There are plenty of options designed to help you build credit, so long as you use your card responsibly.
If you’re new to the credit game, or you’re in the process of building your credit back up, a secured credit card could be a worthy option to consider.
Consider your credit score
If you’ve already built up some credit, it’s important to examine your current score. Credit card issuers typically examine your credit score when deciding whether or not to approve your card application.
Understanding your credit score can help you choose from the cards that match your credit profile, whether you’ve got a standout score or you’re working on bringing it up.
Learn about credit score ranges and find out where you land on the credit rating scale.
Once you have a handle on your credit score, you can narrow your search down to cards that you’re likely to be approved for.
Because each card application you make will result in a hard inquiry—and a subsequent ding on your credit—it’s important to apply wisely.
No point in wasting a hard inquiry on your credit, just to have your card application rejected.
How to Choose a Credit Card: 5 Things to Keep in Mind
As you begin researching different credit cards, there are certain factors you may want to keep in mind.
Use this checklist as your guide:
- Minimum monthly payment
- Annual percentage rate (APR)
- Annual fee
- Credit limits
- Introductory interest rates
1. Minimum Monthly Payment
If you don’t pay off your credit card balance every month, you’ll need to pay at least your minimum monthly payment.
This is the smallest amount you’re allowed to pay on your credit account per month, and paying this amount leaves you in good standing with your credit card payment.
Making your minimum monthly payment on time will help you avoid late fees, and contribute to a good repayment history on your credit report.
If you don’t make your minimum monthly payment by the due date, you could incur late fees and get hit with a penalty APR (which we’ll discuss further below).
How is my minimum payment calculated?
In general, your monthly minimum payment is a small, calculated amount of your balance, or a fixed dollar value—whichever is greater.
The minimum payment on your credit card balance is calculated as a percentage of the total balance. It may also be calculated as all interest plus 1% to 3% of the principal balance.
Some card issuers may set a floor to their minimum payments, which is a fixed dollar amount that your monthly minimum payment can’t fall below.
As you pay your balance, your minimum payment will drop, as long as you don’t make new charges. However, because interest compounds, you’ll likely end up paying your credit card debt for a long time if you only tackle the minimum every month.
Minimum Monthly Payment Tips
- Paying the minimum is beneficial for certain months where you’ve incurred a large expense, or switched jobs. It should not be a routine habit, as paying the minimum could mean it takes you years to pay off your full balance.
2. Annual Percentage Rate (APR)
You need to consider whether you intend to (and that you’re able to) pay off your entire credit card balance every month. Why? Annual percentage rate (APR).
Your card’s APR is the cost of borrowing on your card; if you don’t pay off your balance in full every month, you’ll be hit with interest charges.
How does APR work
Typically, credit card companies offer users a grace period on new purchases. If you make transactions, but pay off your ending balance every month (note: by the due date), you’re only required to pay the amount you owe—no interest in sight.
However, if you choose to carry a balance on your card and don’t pay it off every month, you’ll be expected to pay the agreed-upon interest (APR) on the outstanding balance.
When selecting between credit cards, APR can help you compare how expensive a purchase will be on each card, especially if you tend to carry a balance.
What’s a good APR for your credit card? To put it simply: One that you can afford to pay.
The average credit card APR can vary significantly depending on the kind of credit card you’re hoping to acquire. Travel rewards and cash back cards will typically come with higher APRs, to compensate for the additional benefits that they offer.
Be sure that you can handle the payments required if you intend to carry a balance on your card, and examine your APR options carefully.
- Annual Percentage Rate (APR) can help you evaluate all offers and promotions.
- Typically, lenders cannot change the APR for the first 12 months. However, an APR can change during that time if it’s a promotional or variable rate.
- Always review terms and conditions – including APR – before activating your card. It’s important that you know what you’re signing up for, including late fees, limits, and more.
- Lower credit scores may mean higher APR, so be prepared for a higher rate if you’re new to the credit card game.
3. Annual Fee
Some credit card companies charge a fee each year for use of particular cards—typically reward cards, premium cards, and secured cards.
An annual fee increases the total cost of having a credit card, so it’s important to ensure that the benefit you’re getting from the card in particular is worth the extra money.
In other words: consider whether the awards are worth the fees.
How does an annual fee get charged?
Annual fees can be charged in different ways; you might receive a one-time charge during a specific time of year. Or, your credit card issuer may divide up your total annual fee and assess smaller amounts monthly.
Many credit card lenders will waive their annual fee the first year you have the card; once you’ve hit that one-year anniversary, the fee will automatically be charged to your account.
Tips for Annual Fees
- If your annual fee is waived the first year, and you decide it’s not worth it, you can close the account. However, closing an account may hurt your credit score.
- Some creditors allow you to skip the annual fee, so long as you charge a certain amount on your card every year. Contact your credit card issuer to find out if they provide this offering.
- If your credit card issuer imposes a new annual fee or raises their current one, they are required to notify you 45 days in advance.
4. Credit Limit
Your credit limit defines your purchasing power; this is the amount of credit you’re able to charge on your card.
According to Experian data from 2016, the average credit card limit in December 2016 was $8,071—but your credit limit may be significantly different.
How is my credit limit determined?
Lenders will decide your credit limit when issuing your credit card.
They typically base their decision on your creditworthiness, which may be affected by your credit history, existing credit score, and your income level.
Credit card issuers do an in-depth analysis of your finances, and cater your card’s credit limit to your financial past.
For example, your credit card company may offer you a $3,000 limit on a particular card, while another customer is only approved for a $1,000 limit on the same card.
Tips for credit limit
- If you choose a credit card with a predetermined limit, consider starting out with a low credit limit. This will allow you to ease your way into credit usage, and may help you familiarize yourself with responsible credit spending habits.
- Credit limits may increase as you build a longer credit history.
- You may want to avoid no-limit credit cards; on your credit report, these cards may make it seem to lenders that you’ve maxed out your credit card—which can then negatively impact your credit score.
5. Introductory interest rates
As you learn how to choose a credit card, you may want to consider introductory rates.
An introductory rate is a low interest rate that can be as low as 0%. This introductory rate applies to your balance for the first few months following the date you opened your credit card account.
Choosing a credit card with an introductory rate can be tempting; these rates allow you to pay less than you would on a different credit card with a higher interest rate.
Introductory rates are most often provided to applicants with good to excellent credit, and may only apply to a particular type of balance, whether that be balance transfers, purchases, or something else.
Law requires that introductory rates last at least six months. Depending on the credit card, this time period may be much longer – in some cases, as long as 21 months. The longer, the better, because you’ll enjoy that introductory rate for a longer period of time.
Tips for introductory interest rates
- If you choose a credit card that comes with an introductory rate, keep an eye on the length of the introductory period, and try to pay off your balance before that time ends.
- Keep an eye on the terms of your new credit card. On some cards, your introductory rate may expire if you are more than 60 days late on your credit card payment.
- Choosing a credit card with introductory rates may be a good idea if you’re going to make a big purchase and want time to pay it off without dealing with high interest rates.
From monthly minimums to credit limits, there’s plenty that goes into picking a credit card. Assessing these factors before choosing a credit card can help you make your decision.
Choose Your Rewards Carefully
There’s yet another factor to consider as you browse credit card options, but this is arguably one of the most fun! That’s right, it’s rewards time.
If you’ve got good to excellent credit and you don’t plan to carry a balance, you may consider choosing a credit card that rewards you for your spending.
There are several different types of reward programs available, including cards that offer cash back, points, and miles. Let’s take a look at each:
Cash Back Rewards
Cash reward cards are typically the easiest to use, as the rewards system is fairly straightforward.
However, the phrase “cash reward” can be misleading; these cards don’t always pay you back in cash. Some programs will only allow you to redeem these cash rewards in the form of account credit, while others will make a direct deposit into your bank account.
In some cases, credit issuers may allow you to redeem your cash rewards for gift cards to particular merchants—but keep in mind, these are merchant partners, so you may be limited as to where you can “cash in”.
You also may be required to redeem your cash rewards in increments or hit a certain spending minimum in order to do so.
Points are awarded for every dollar you spend; for example, one credit card issuer may offer two points per dollar spent.
Points may be redeemable for travel, cash, gift cards, or account credit. Points can also be redeemed for merchandise in a reward program’s online shopping mall.
Also called travel reward cards, miles programs reward your spending with miles that can be redeemed for airline tickets.
The number of miles you earn per dollar varies by credit card, and the number of miles needed to purchase any given flight can vary between frequent flier programs.
While you may be able to convert miles between programs, the conversion process could cost you some of your hard-earned (or should we say hard-spent) points.
Comparing Credit Card Rewards
|Reward value||Rewards value may vary depending on redemption||Rewards value may vary depending on redemption||Rewards have set value|
|Redemption options||May be redeemed for flights, hotel stays, and other specified travel costs||Generic points can be redeemed for rewards including cash, merchandise, events, travel, and more||Can be redeemed during checkout with specific retailers|
|Ability to Convert Rewards||May be transferable to other loyalty programs||May be transferable to other loyalty programs||May be converted to points in specified programs|
Tips for Choosing a Rewards Credit Card
- Make sure the card you choose complements your lifestyle. If you travel constantly, you might consider an airline card. If you prefer simplicity, you might opt for a cash back credit card.
- Reward programs are subject to change; stay on top of the rules and regulations, and read the fine print carefully.
- Some credit card issuers will offer bonus opportunities; spending a certain amount of money during particular times of the year could help you triple your earning power.
- Pay off your balance every month. If you keep a revolving balance, you aren’t getting the most out of your rewards—because you’ll likely be paying a higher interest rate.
As you can see, there are plenty of credit cards to choose from. If you’ve been asking yourself “Which credit card should I get?” hopefully the above tips helped you hone in on the credit card best suited to your needs.
No one card is best for everyone, and there are many factors to consider before opening a new credit card account. Keep these tips in mind as you browse your credit card options, and select the card that fits your wallet.