How to Choose the Best Credit Card for You
Credit cards are useful for many things, from building credit to earning rewards on everyday purchases. But given the wide array of credit cards in the market, choosing the best one for your particular financial situation could be a daunting task, especially if it’s your first card.
Here, we explain some steps to take and factors to consider if you’re trying to find the right card for you.
Table of contents
- Understand your financial situation and spending habits
- Get to know the different types of credit cards
- Understanding rewards structures
- How to choose the best credit card FAQs
- Summary of Money’s How to choose the best credit card for you
How to choose the best credit card for you
While an attractive generous sign-up bonuses might seem tempting, there are other factors to look when it comes to choosing your next — or first — credit card.
Understand your financial situation and spending habits
Even the best credit card isn’t the best for everyone. While there are premium options that include a massive list of benefits, they tend to have high annual fees and some of the perks might not be congruent with your lifestyle.
For you to pick the best possible card for yourself, you need to understand your financial situation, your spending habits and where the majority of your money goes on a monthly basis.
Check your credit score
First, it’s important to know where your credit stands by requesting your credit report and finding out your credit score. While you have the right to a free weekly report, this version might not include your credit score. In order to find out your FICO score — the one most lenders use when assessing your applications — you might have to purchase one directly from one of the three main credit bureaus: Experian, Transunion or Equifax.
This is an important step because it helps you focus your efforts on cards that are likely to accept borrowers with your credit score. Applying for cards that are long shots will needlessly raise the number of hard inquiries noted in your credit report, which negatively impacts your score.
It’s important to note that lenders will use your credit score to set your APR and to establish your credit limit. Borrowers with excellent credit will typically get the best interest rates, while those with bad credit will likely get a high interest rate.
Track your spending
In order to pick a card that will truly save you money, you need to be sure the categories they reward align with your usual spending.
Check where most of your money actually goes. If a large part of your budget goes to travel, groceries, gas, public transportation, restaurants or retail, make sure the cards you're considering offer high reward rates in those categories.
Consider your lifestyle
Are you a jetsetter? Are you a home cook? Do you not have time to cook at all? Asking yourself these questions will help you find the card you need and will also help you choose between different perks and features.
A business person who travels once a month, for example, would benefit greatly from airport lounge access. If you pay for tickets yourself (instead of your company), you might want more travel insurance coverage. And if you tend to rent a car when you travel, primary rental insurance could be a priority.
Get to know the different types of credit cards
Once you have a clear picture of your spending and lifestyle, you’re ready to choose the best card for you. There are different types of credit cards, differentiated by their purposes, specific features, cost and/or the type of consumer they’re intended for.
Here are some important ones to consider:
Secured credit cards and credit cards for building credit
Secured cards require a security deposit as collateral, which makes them far more approval-friendly and a good option for people with either no credit history or a low credit score.
If you have a poor credit score or little to no credit history, this type of card is a good bet. Try to find a secured credit card with a low minimum deposit (such as $200 or below), an APR under 30% and with no annual or maintenance fees. There are good cards that don’t necessarily fit that criteria, but it’s a good baseline to follow.
For a more in-depth guide on these types of cards — as well as some unsecured options for lower credit scores — take a look at our article Best Credit Cards to Build Credit.
Balance transfer and 0% APR credit cards
Although many credit cards give the option of transferring a balance from a different card, some offer long introductory periods (15 to 21 months) with 0% APR on balance transfers. This allows you to pay your debt down without accumulating interest charges.
However, many of these specialized cards don’t offer cardholders much more beyond a low interest rate, with a few exceptions.
If you’re looking for a credit card with 0% intro APR on balance transfers, purchases or both, look for offers between 15 to 21 months. Also, make sure the period applies to what you actually need since some cards offer different periods for balance transfers and purchases, or some just apply to one of them.
Depending on what you intend to do with that period without interest, consider other features of the card. Cards with 15-month introductory periods (in rarer cases, just 12) tend to offer the best rewards and good insurance coverage, as opposed to most cards with 18 to 21-month periods.
To look at some of the best options, including top-notch credit cards with both rewards and great intro offers, take a look at our article Best Balance Transfer Credit Cards.
Rewards credit cards
A significant number of cards offer some type of rewards program, whether it’s cash back, points or miles. Depending on the point system, you can earn these for any and all purchases, or for specific spending categories, from groceries to streaming services and many more in between.
The best credit cards offer high rewards in a variety of categories, as well as statement credits (an amount that the issuer will discount from your billing statement) when purchasing from a specific category, store or brand.
When looking for credit cards with rewards that are relevant to you, here are some baseline amounts to consider:
- Cards with a flat rewards rate (no bonus categories) should offer at least 1.5% (or 1.5x points) per dollar. There are some options that offer 2% as well, but not many; 1.5% is a good baseline and provides a broader range of options with additional benefits.
- If particular bonus categories such as gas, dining or groceries are important to you, look at cards that offer at least 3% or 3x points per dollar. Also, consider any spending caps that the card might have for that particular reward rate in a year.
- Travel is a hugely popular category, and it’s not uncommon for issuers to offer up to 5% or 5x points per dollar in travel-related purchases. However, this is mostly when using their own booking portals; outside of those, good rewards rates are around 2% or 2x points.
Travel credit cards
Many cards offer travel rewards, but some are just jam-packed with them. Some of the best travel cards offer high reward rates — anywhere between 3x points to 10x points — when you purchase airline tickets, book hotels or rent a car. These cards also often offer very attractive welcome offers that can help you snag a free flight or an upgrade.
Travel cards can provide many other benefits, such as travel insurance. Look for coverage that includes rental car (collision damage waiver), trip cancellation insurance, lost luggage reimbursement or travel emergency insurance. If a travel card doesn’t offer any of these, it’s a good sign to keep looking.
Another thing to consider are foreign transaction fees — usually somewhere around 3% of the total spent in non-U.S. currency — if you plan to travel internationally. If your travels are mostly domestic, however, you can choose one of the many great travel cards that do charge that fee.
Typically speaking, the more perks, the higher the annual fee, but some no or low-annual-fee cards can also provide great perks.
Business credit cards
A business credit card can help keep your personal finances separate from your business expenses. The best business credit cards offer rewards on business-related categories, such as shipping services or marketing expenses. It also provides additional employee cards (usually for free) as well as monitoring features to keep track of employee spending. They can also provide plenty of traveling perks that can make business trips much more comfortable along with an array of insurance policies.
When choosing a good business credit card, make sure to think about what your business spends the most on, how often do you or your employees travel, and so on.
For a more detailed look at what makes a good business credit card, read our article: Best Business Credit Cards.
Understand credit card fees and benefits
In order to choose the right credit card for you, it’s important to read the fine print for the card you’re about to apply for. And, to better understand it, you’ll need to familiarize yourself with the most common credit card terminology. Here are the basics when it comes to features and benefits to take into account.
APR
The variable annual percentage rate (APR) refers to the interest your balance accrues if not paid in full. Cards usually have a variable range (16.24%-27.99%, for example) based on the national Prime Rate. Applicants will get a rate based on their creditworthiness, and this will go slightly up and down along with the Prime Rate (8.50% as of the time of this article).
Depending on what type of credit card you’re looking for, the definition of a good APR will vary:
- For credit cards aimed at people with poor or little credit history, anything below 30% will be very good — although above 30% is becoming more and more prevalent.
- On regular credit cards, a range with a minimum below 20% and a maximum below 30% is optimal — a typical range at the moment is 20%-29%.
- Credit cards that specialize in low APR range around 10%-18%; any card that offers less than 10% is at the top of the class.
Fees
Credit cards charge a variety of fees, the main one being the annual fee: a fixed price paid annually just to have the credit card. Many cards don’t charge an annual fee, but those that do can range anywhere from $95 to around $700. It’s important to compare the cost of the annual fee to the rewards you’re getting in return.
Foreign transaction fees are also very important to keep in mind, especially if you plan on traveling with your new credit card. Foreign transaction fees are a charge of, usually, 3% whenever making purchases with non-U.S. currency.
Balance transfer fees could be a significant issue if you plan on transferring a balance with your new card. They’re usually 3% to 5% of the total transferred, or a minimum of $5 to $10, whichever is greater. Look for the lower 3% and $5 minimum, unless you’re looking for no transfer fee at all, which is very rare — we do, however, have some options for that on our article best balance transfer credit cards.
Insurance coverage
Many credit cards include different insurance policies, from rental car insurance to purchase protection and extended warranties.
Here is some of the typical coverage you can expect to find in a really good credit card:
- Purchase protection
- Extended warranty
- Rental car insurance
- Trip cancellation or interruption insurance
- Rental car insurance
- Trip delay reimbursement
- Lost luggage reimbursement
Rewards
Rewards can come in different forms, such as cash back, points or miles. Additionally, different cards reward different categories; for example, restaurants, gas stations, supermarkets or travel. Purchases you make in these categories will earn you a higher rate of points or cash back. It’s important to check and compare these bonus categories and make sure that these match your lifestyle and spending.
First, look at the different categories each card offers, then look at the amounts and compare between cards. Some will also have limits as to how much you can earn or up to how much spending will be rewarded, which could either affect you or not, depending on your spending habits.
Understanding rewards structures
A lot of cards offer rewards, but not all rewards are made, earned or redeemed the same way. In order to choose the best credit card for you, you’ll need to understand their rewards systems and assess whether the categories they reward make sense for you.
Here are some of the most important things to know:
Cash back
For the most part, cash back credit cards are fairly simple: they’ll give you a percentage of what you spend back. For the most part, its worth is determined by cash value. If the cash-back rate is 1%, then if you spend $100, you’ll earn $1.00 back.
A good rate for flat-rate cards (meaning cards that offer a single reward rate across all purchases) is 1.5% to 2%. A good rate for bonus categories is around 3% to 6%.
Points and miles
Points and miles work essentially the same way, miles are simply a fun way some credit card issuers call rewards on travel-related cards. Points are earned depending on expenses (1x point for each dollar and so on), but their value isn’t a 1:1 ratio. In an issuer’s portal, a point might be worth one cent or two, but can also be worth as low as half a cent or even one quarter of a cent.
Points can also be transferred to travel partners or from one card to another within the same issuer’s system, like with Chase Ultimate Rewards®. This can also increase or decrease their value.
Statement credits
Statement credits are a type of refund, that is, it’s money directly applied to your credit card balance. With many cards, you can use your cash back or points in the form of a statement credit. Some will also reward purchases with statement credits instead of points; for example, a card issuer might offer a $300 statement credit if that amount was spent at a specific store within a calendar year.
Redemption flexibility
Many credit card companies allow points or cash back to be redeemed for cash or statement credits, as well as gift cards, retail purchases or travel. There are others, however, that have limited ways to redeem rewards; for example, some issuers only allow you to redeem your points or cash back for things like gift cards and only through their online portals.
Make sure to look at the card’s fine print to see how the reward redemption system works.
Summary of Money’s How to choose the best credit card for you
- It’s important to understand your own financial situation and spending habits before choosing a credit card.
- Checking your credit score should be the first step of the process.
- Make sure to read about the types of credit cards and see which ones align with your lifestyle and spending.
- A great credit card offers rewards on everyday spending as well as insurance coverage for rental cars, travel delays and more.