How should I choose the right credit card?
Picking the right credit card is dependent on two key things: your spending style and personal credit goals. Are you trying to build credit? Perhaps you fly a lot for work and could start taking advantage of your purchases by earning travel rewards? Maybe you don’t know what you want at all. That’s OK! Here are a few scenarios to help you figure out where you fit in the equation and find the right card.
“I want free travel and perks.”
If you’re a jetsetter, a travel card is the way to go. Not only will you earn points and miles on a huge variety of travel purchases (anything from airfare to buses to parking garages), many travel cards include great perks and benefits that make your trip a much more pleasant experience. Take The Platinum Card® from American Express, for example. Just by owning the card, you get free access to over 1,000 Amex Centurion lounges worldwide, plus perks like complimentary WiFi at locations worldwide and an automatic upgrade to Hilton Honors Gold Status.
Many travel cards also give you the option to transfer your points to travel loyalty programs like Delta Skymiles or United MileagePlus. Remember: only do this if you’re getting a good value for your points. The Chase Sapphire Preferred® Card is one of the best: it offers a 1:1 points value transfer to its partners. But not all cards have an equally generous transfer value. If you’re already invested in a travel loyalty program, research the transfer value before signing up for a new card.
What to look for
If travel is your number one goal, you’ll want a credit card that earns at least 2X points on travel and has tons of flexibility, including allowing you to transfer points to hotel and airline loyalty programs. Also, many of the best travel credit cards offer additional travel benefits like trip cancellation coverage, primary and secondary auto rental coverage, and emergency travel assistance.
Most travel cards have annual fees, which are well worth the price if you earn enough points each year to justify the fee. You will also need excellent credit for most top travel cards.
“I’m looking for the best sign-up bonus right now.”
While it’s smart to think about the ongoing rewards you can earn, scoring a huge sign-up bonus doesn’t hurt, either. Fortunately, a ton of credit cards offer huge bonuses to people who are able to meet a minimum spending requirement within the first few months. While these sign-up bonuses can come in the form of cash back, you can also earn gift cards, airline miles, free hotel stays, and hotel points as well.
What to look for
Credit card sign-up bonuses are often cyclical with a peak season generally in the summer months, although some top travel cards offer healthy bonuses all year round. Sign-up bonuses are highest on rewards cards and travel cards, but make sure the one-time bonus is worth it. Often the largest point bonuses are on hotel cards, which offer little long-term value unless you travel frequently or only stay at one hotel chain. If you only travel one to two times per year, you will probably not earn enough points to justify the annual fee.
Since most cards with big bonuses come with a minimum spending requirement, you’ll need to make sure you can hit that requirement without hurting your finances. Also, make sure the “bonus” you earn is something you can actually use. For example, a sign-up bonus made up of airline miles will only be useful if you plan to travel and can actually fly that airline.
“I want to earn cash back on my spending.”
If you’re new to credit cards, cash back cards are a great way to cut your teeth and build credit, because they generally don’t require a perfect credit score for approval. Here’s how they work: you’ll earn cash back on all purchases that you make. Some of those purchases will fall into bonus categories (like restaurants, gas stations, or supermarkets), which offer extremely high rewards rates — we’ve seen cards hit as much as 6% cash back. The rest of your purchases will usually earn between 1% and 2% cash back.
It’s important to remember that not all “cash back” cards actually give you cash back. Some of the more flexible cash back cards let you redeem cash back for gift cards, or have the money transferred directly to your bank account. Others allow you to redeem cash back for a statement credit, which essentially means you can use your rewards to wipe out debts on your bill. (Note: some cards only allow you to apply statement credits toward certain types of purchases, so make so you read up before committing to a card.)
What to look for
A cash back card is ideal when used as either your first credit card (they usually don’t require a great credit rating like some premium or travel rewards cards), or a complement to a higher-earning rewards card. Use cash back cards to maximize rewards on groceries, gas, and other categories where your rewards card might not earn bonus points.
Cash back cards often rotate their bonus categories on a quarterly schedule. This means that you might earn 5% back on gas for the first three months of the year, and then groceries in the second quarter. Also, despite the allure of high earnings, cash back cards often cap the points you can earn in a given quarter.
“I need to reduce my interest rate.”
One way to avoid high-interest credit card payments is to transfer your balance to a new credit card. When you do this, make sure it’s a credit card that will either accept your balance without charging a fee or offers a 0% introductory APR on balance transfers for over a year. This gives you time to pay off your large balance.
What to look for
If you’re carrying credit card debt at a high interest rate, look for a card with a low interest rate or 0% introductory APR for anywhere between 12 to 21 months. Depending on how much you owe and your current rate, the interest you save could add up quick. And when you’re not paying huge interest payments every month, you may be able to get out of debt faster.
Most 0% introductory APR cards carry a fee for transferring your balance to the new card. This fee is usually between 3% and 5% of your total balance. The Chase Slate® card waives this fee if the balance is transferred within 60 days from a non-Chase credit card.
“I need to build credit.”
Building credit is an important step in your financial journey, and using a credit card responsibly is the quickest way to build credit. However, when you do not have credit history, it can be difficult to obtain a card. There are two types of credit cards for building credit: unsecured and secured. Most credit cards are unsecured and do not require a cash deposit to use. A secured credit card is needed in more extreme circumstances where you need to “secure” your line of credit by depositing a cash amount equal to what you want to borrow.
What to look for
If your goal is building credit, rewards should take a back seat for the time being. Instead of looking for the top rewards credit cards, you should home in on cards geared to people with poor or evolving credit. If you can, you’ll want to get an unsecured credit card that doesn’t require a deposit.
You might have to apply for a secured credit card if your credit score is extremely low or if your credit history is limited. With a secured credit card, you would need to deposit $200-$500 with the credit card company in order to receive a $200-$500 line of credit. This sounds like a big barrier, but with a few months of on-time payments, you can reasonably expect to have the deposit requirement lifted.
“I don’t know what I need.”
If you’re still unsure which type of card would benefit you the most, browsing them all can help you compare and contrast. Take a look at our credit card database below.
Additional Credit Card Research
If you’re looking for any easy way to compare cards, check out our search tool below:
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How to Make The Right Credit Card Work For You
When used correctly, credit cards are powerful tools to help manage cash flow, and “earn” on your everyday spending. However, used improperly, credit cards can wreak havoc on your finances. Below are a few tips to make sure you get the most out of your credit card.
Research your rewards program
This is where it really pays to read the fine print. It takes a bit of digging, but it’s always worth it.
Take this for example: Gold Delta SkyMiles® Credit Card from American Express owners get their first checked bag free on every Delta flight. It’s a great perk that’s plastered at the front of the offer page. But without scrutinizing the fine print, you might not learn that cardholders also get up to $500 of checked baggage insurance, car rental loss and damage insurance, and discounts on eligible in-flight purchases. If you aren’t aware of all your perks, you probably won’t get the maximum benefit from your card.
Likewise, if you don’t understand all the rules surrounding your rewards, there’s a big chance you won’t get the wonderful experience you were hoping for.
Let’s say you’re an super frequent shopper and you love the idea of earning 5% cash back on bonus category purchases with the Chase Freedom®. You sign up for the card, and your first rotating 5% bonus category on the Chase cash back calendar is U.S. restaurants. So you eat out. A lot. And at the end of the quarter, you’re stunned to find that you only earned 1% cash back on all your dining, not 5%. Why? Because Chase requires you to activate bonus categories from your account at the start of each quarter, otherwise you don’t get the benefit. If you don’t read the rules and regulations, you mind wind up in a similar scenario.
Don’t Be Afraid to Get Multiple Cards
A huge misconception in the world of credit cards is that it is bad for your credit to have more than one or two cards. Because a large percentage of your credit score is based on your balance-to-limit ratio, having a large credit limit spread over several cards and a zero balance can actually be better for your credit score than just one card. It’s not an exact science, but in order to maintain an above average credit score, experts recommend that your credit utilization ratio should never exceed 30%. In other words, the balance on each card you own should never exceed 30% of your available credit line. So if one of your cards has a maximum credit line of $10,000, try to keep the balance below $3,000. Carrying multiple cards also helps you leverage the different benefits and perks that different types of rewards cards have to offer. For example, you could get a hotel card for free hotel stays and a cash-back card to help you pay for the gas to get to your destination.
Always treat your credit card like cash
In order to maximize rewards without getting in trouble, you need to treat your credit card like cash. This means only spending amounts you have incoming each month and not a penny more. (That’s where a budget comes in super handy.) The quickest way to enter the credit card downward spiral is to use a credit card to make a large purchase you cannot afford. If you don’t have the cash to pay for something, don’t use credit as an excuse to justify the purchase. Only charge what you can afford to pay off each month — period.
Further reading: The Simple Dollar’s guide to choosing a budget.
Although the best credit cards offer a slew of obvious benefits including cash back and travel rewards, many offer a handful of hidden perks that aren’t always advertised. You might have to dig deeper to find them, but these “extras” can truly come in handy. If used correctly, they can even help you save money, travel safer, and protect yourself from undue risk. Here are a few credit card benefits not everyone knows about, and some information on how each one works:
Benefit #1: Zero Liability
Although consumer liability for fraudulent purchases made on credit is limited to $50, the best cards take that protection a step further and offer zero liability for transactions you didn’t make. If your card is lost or stolen, or if a random charge appears on your bill, you won’t be liable if you report it immediately.
Benefit #2: No Foreign Transaction Fees
Many of the best credit cards on the market charge a foreign transaction fee equal to 3% of your purchase for charges made overseas. However, some waive this fee altogether — a feature that can help you save when you travel out of the country.
The Chase Sapphire Preferred® Card is a great choice if you’re worried about foreign transaction fees because not only does it feature 0% foreign transaction fee it earns 2X points on dining worldwide. The average international traveler spends about $30 per day at restaurants. If you’re a family of four, that could easily add up to over $400 during a week’s vacation. With the Chase Sapphire Preferred® Card, you’ll save on fees and earn rewards points when you dine overseas.
Benefit #3: Rental Car Coverage
If you rent cars frequently, you have probably already checked to make sure your personal auto policy provides this type of coverage. However, it’s also important to check with your credit card as well. While some cards only offer a secondary Collision Damage Waiver (CDW), others offer expensive primary auto rental coverage as a free perk to cardholders.
Benefit #4: A Free FICO Score
Although you can pay to get your FICO score at any time, several of the top rewards cards offer a free FICO score on your monthly statement or bill. This can save you the expense of paying to see your credit score, while also helping you monitor fluctuations in your score over time.
Benefit #5: Emergency Travel Assistance
If you find yourself in a bind, it is possible your card issuer could help. That’s because many of the best rewards cards offer emergency travel assistance for individuals traveling at least 100 miles from home. Perks include helping find lost luggage to booking alternative travel plans.
Benefit #6: Free Travel Insurance
Although benefits vary, several of the top rewards cards offer trip delay or trip cancellation insurance that will reimburse you if your itinerary is changed due to issues beyond your control. This type of insurance is most often used when a trip is canceled due to the unexpected death of a family member, an accident occurs, or a natural disaster puts travel plans on the back burner.
Benefit #7: Extended Warranties
Many of the top cards offer extended warranties that kick in if something goes wrong outside of a qualified item’s traditional one-year manufacturer’s warranty. Depending on the circumstances, this type of coverage usually reimburses you or sends you a replacement.
Benefit #8: Price Protection
Some cards offer price protection, which will pay you the difference on a large-ticket item if it goes on sale shortly after you purchase it. The most popular program is Citi’s Price Rewind. With Citi’s service, you will be automatically reimbursed for the price difference if any large item you buy and register is found at a lower price within 60 days.
Benefit #9: Roadside Assistance
If you have a credit card that offers roadside assistance and you experience a breakdown, all you need to do is call the number on the back of your card. You’ll be charged a flat fee depending on what type of service you require, but at least you won’t be left at the mercy of your local tow truck company.
Benefit #10 Access to Cash
While not common, some credit cards give you access to cash at the register similar to your debit card. For example, with Discover’s Cash Over program, you can request cash back at the register and avoid a trip to the ATM — and without paying any fees. This benefit is only available at participating stores.