With so many different credit cards available — from rewards credit cards to balance transfer cards — it can be a challenge to pinpoint the best credit card for your needs and financial situation.
When figuring out how to choose a credit card, ask yourself why you want a new credit card in the first place. Are you looking for cash back on your everyday purchases, aiming to repair bad credit with a secured credit card, or something else altogether?
Likewise, do you want a credit card for everyday purchases or just for emergencies? Apply for a card that aligns with your reasons for using it.
Why should you use a credit card?
Offering convenience, plenty of perks, and a simple way to build your credit score, credit cards are an invaluable financial tool. In fact, the United States alone is home to more than 175 million credit cardholders.
Some of the biggest advantages of using a credit card are the consumer protections it offers against fraud. For example, if your card is lost or stolen, you can contact your credit card issuer and explain the situation. The lender will then likely cancel the card and issue you a new one.
Depending on when you report your missing credit card, you may only be responsible for a maximum of $50 in any unauthorized charges made on your card. This type of protection is usually not extended to other methods of payment, such as cash or debit cards.
In addition, credit cards make it easy to track your spending. When you use cash, keeping track of how much you’re spending each month can be time-consuming. However, when you use a credit card, all of your purchases are itemized on your monthly statement.
Not to mention, using a credit card responsibly can help you build a positive credit history, potentially leading to lower interest rates on new lines of credit from lenders in the future.
However, it’s important to keep in mind that using a credit card requires a great deal of responsibility. They often come with high interest rates, and failing to pay off the balance could result in snowballing debt.
What are the most common types of credit cards?
Individuals can take their pick from a wide variety of credit cards on the market, including personal credit cards, business credit cards, and student cards. In general, credit cards can be either secured or unsecured, and some feature rewards programs like cash back or travel points.
Personal credit cards are ideal for everyday expenses, from dining and groceries to gas and even monthly rent payments. Many of these cards may also offer certain perks, such as cash back on purchases or a substantial sign-up bonus.
On the other hand, a business credit card can simplify the process of managing business expenses and building a company’s credit history. These credit cards often come with higher credit limits than personal cards.
A great option for those with limited income, student credit cards are designed for college students. These cards may provide features like low interest rates and no annual fees, though they often have lower credit limits compared with personal or business cards.
What is the difference between a secured credit card and an unsecured card?
A secured credit card is often backed by a security deposit, which is held as collateral against the credit limit on the card. This means that if you default on your payments, the issuer can use the deposit to cover the outstanding balance.
Secured credit cards are usually available to people with “poor” or “fair” credit or limited credit history, and they can be helpful tools for building credit. In contrast, an unsecured credit card does not require a security deposit.
Instead, the issuer extends the cardholder credit based on their credit history and income. When consumers default on this kind of card, the credit card issuer can take legal action against the cardholder to recover the debt.
Unsecured cards are generally available to people with “good,” “very good,” or “excellent” credit history. In terms of FICO Scores, which are among the most common credit scoring models used by the major credit bureaus, good credit starts at 670 points, while the range for excellent credit is 800 and above.
What is a rewards credit card?
Most unsecured credit cards offer rewards programs that let you earn points on your purchases. Credit card rewards can be redeemed for a range of perks, including statement credit, cash, travel, merchandise, or gift cards.
In addition, depending on the card, you may also be able to earn bonus points by spending in certain categories such as restaurants or gas stations. The most common rewards credit cards are cash back and travel credit cards.
Cashback credit cards give you a percentage of your purchases back in the form of cash rewards, typically at a rate of around 1 to 2%. This means that for every $100 you spend, you’ll receive $1 to $2 back based on your rewards rate.
Cardholders can use the cashback rewards to redeem products or gift cards, and they can even apply it as a statement credit toward their card’s monthly bill. Similarly, travel rewards cards offer points or miles that can be redeemed for travel, items, or cash back.
Rewards credit cards often have annual fees, but the perks can be worth it if you use the card regularly. Review the credit card’s fine print thoroughly so that you understand how to earn and redeem points or miles.
How can you choose a credit card to suit your needs?
Should you apply for a secured credit card or a cashback rewards card? Thanks to the abundance of credit card offers out there, answering this can be difficult. Here are a few steps you should take before submitting your credit card application.
1. Check your credit report to find out your credit score
Credit card companies use your credit score to assess whether or not you are a good candidate for a line of credit. Your credit score impacts the type of credit card you qualify for, as well as the terms of the card, like the interest rate and credit limit.
The three main credit reporting agencies in the U.S. include Equifax, Experian, and TransUnion. Every year, you are entitled to one free credit report from each agency, which you can request online, by phone, or through the mail.
When reviewing your credit report, look for any errors or inaccuracies that could be adversely affecting your scores, such as mistaken late payments or accounts you haven’t authorized. If you find any discrepancies, contact the credit reporting agency and dispute the error.
Periodically checking your report can help you catch any potential problems early and gain a better understanding of where you stand financially and what steps you may need to take to support your credit score.
2. Evaluate your personal finances and goals
Think about what type of spender you are. Do you prefer to pay off your balance in full each month, or do you carry a balance from month to month? Those who carry a balance may be interested in cards with a low annual percentage rate (APR) or even 0% APR credit cards.
Cardholders can move their high-interest credit card debt to a balance transfer credit card that offers a low or 0% introductory APR for a limited amount of time, usually for several months or the entire first year.
This potentially allows consumers to pay off their debt more quickly by saving on interest charges while building credit. However, once the intro APR period ends, a higher interest rate could apply to the remaining balance.
These cards are also useful when you’re planning to make a large purchase, such as a vacation package or kitchen appliance, and pay it off over time. Conversely, if you pay off your balance in full each month, consider a credit card with rewards that fit your spending habits.
For example, if you’re a frequent traveler, you may want a travel card that offers points or miles for flight or hotel redemptions. In fact, many airlines and hospitality brands offer co-branded credit cards.
After checking your credit score and determining how you plan to use a new credit card, figure out if you tend to spend a lot on certain expenses, such as groceries or office supplies.
There are cards that offer rewards specifically for those categories. Ultimately, knowing how you typically spend your money can help you choose a card that will give you the most value.
3. Do your due diligence when comparing credit card offers
Take the time to compare credit card offers side by side in order to find the best credit card for your needs. Carefully read the terms and conditions of each credit card so you understand the obligations associated with each product, such as fees and interest rates.
Look into the credit card’s APR to figure out how much you may end up paying in interest if you carry a balance on your card. Also, keep in mind many credit cards come with annual fees, balance transfer fees, foreign transaction fees, late payment fees, and more.
Not to mention, certain credit cards come with valuable perks like travel insurance, roadside assistance, and extended warranties on purchases. Based on your lifestyle and personal finances, these benefits could offset an annual fee over time.
Generally, when it comes to choosing a credit card, you can narrow down offers by asking yourself questions like these:
- Do you want a card with rewards? If so, what kind of rewards are you looking for: cash back, points towards travel or merchandise, or something else?
- If you carry a balance month to month: What is the interest rate on the card?
- Are there any fees associated with the card, and are they flat-rate or variable?
- Does the card offer any additional perks?
It can be tempting to simply go with the first offer you see, but spending time comparing options and credit card companies can save you a lot of money and time in the long run.
The bottom line on choosing the best credit card for you
Credit cards allow you to enjoy convenience, as well as build your credit history and potentially improve your credit score. This can be helpful if you’re looking to take out a loan or get approved for a mortgage in the future.
Credit cards have different eligibility requirements, and your credit score is one of the main factors that will determine which cards you qualify for. If you have a good, very good, or excellent credit score, you may have an abundance of options to choose from.
For example, Vital Card offers a generous 1.5% cashback rewards rate on every purchase, as well as practical financial tracking tools to help you manage your spending. Plus, cardholders can take advantage of Vital Card’s referrals program to earn up to 3% cash back for three-month periods, in addition to monthly referral rewards.
2021 Consumer Credit Card Market Report | Consumer Financial Protection Bureau
Lost or Stolen Credit, ATM, and Debit Cards | Federal Trade Commission
Business Credit Card Offers: 5 Things You Should Look Out for | U.S. Small Business Administration
What is a Credit Score? | myFICO
FDIC Consumer News: Rewards Cards – Minimize the Pitfalls, Maximize the Benefits | Federal Deposit Insurance Corporation (FDIC)
Free Credit Reports | Federal Trade Commission
Credit cards key terms | Consumer Financial Protection Bureau
What Is a Good Credit Score? | Experian
How Do Cash Back Credit Cards Work? | Experian
Vital Card blog posts are intended for informational purposes only and should not be considered financial or any other type of advice.