Credit cards are one of the most serious topics when we talk about finances and financial health, and that's because almost everyone has one. Believe it or not, there are over 1.1 billion credit cards in the US, even with a total population of 330 million!
Well, choosing the right credit card is one of the biggest decisions you'll make for your financial future. Luckily, there are some steps you can take to make the right choice! Let's talk about some simple steps you can take to find the best credit card for your needs.
Unsecured vs Secured Credit Cards
Unsecured credit cards are the ones you most commonly think of when you think of the cards in your wallet. They are a lot more common. All it means is that the line of credit has no collateral to ensure the lender will be paid back. This makes interest rates higher, but also adds in amenities like rewards for being responsible with the money you borrow.
Secured cards have collateral, and are a great option to build credit if you're starting from scratch or from a low score due to bankruptcy or missed payments. Often, you'll give the money upfront to the lender, and that will act as your spending limit. This makes it so that you're essentially borrowing money from yourself.
It's similar to auto loans. The lender can repossess your car if you don't pay them back, just as a creditor in this case can keep your money. This keeps interest rates low but doesn't offer much in terms of cash back rewards.
Features To Look For
Before you even think about looking for a new credit card, make sure you know when you need a new card to begin with. If you're set on getting one, then there are important features to look for.
Features of different credit cards vary widely, so it's important to do your research before making a purchase to ensure that it fits your needs. Here are just a few of the important aspects to look for, especially with unsecured cards.
Hidden fees don't have to be hidden. If you want to know what they are, look for them before you make any decisions. Late fees, annual fees, maintenance fees, cash advance fees. Look at these and make sure it fits your needs.
If you know you'll never use your card for a cash advance, maybe you don't have to worry about that. If you know you'll pay on time every month, a high late fee doesn't have to be a deal breaker. Just take these into account and consider your current needs for a card.
Do not overlook this. Interest rates matter, especially for unsecured cards, where rates are high.. Let's say you are looking at two cards that have the same fees and everything, but one has 22% APR and the other has 25%. The biggest mistake you could make is to choose the 25% card just because it has a welcome bonus that's $50 higher.
If you leave a balance of over $1,000 on your card for just two months, you already lost more than that $50. Take this into account. If you ever wind up with $10,000 owed on that card and you make the minimum payment, that's easily an extra $2,500 on your balance at the end of one short year.
This should only be a concern for you if you're responsible with your credit cards. Why is that? Because if you don't pay your card off in full every month and get some rewards, you're still losing money. That's how rewards programs work. It would make more financial sense to worry about interest rates in this case, as you may find some with a 5% difference (or more), compared to a 1% to 3% rewards program.
However, if you are responsible with your credit cards, rewards can absolutely be a high priority on your search! Every card does it differently.
Some do rotating 5% cash back on certain types of purchases every quarter. This could be gas stations, wholesale clubs, Amazon shopping, or anywhere else the company partnered with, and they'll give you 5% cash back on any purchases within that framework at the end. Some will do a uniform 1% to 2% rewards program for all purchases. It depends entirely on the company, so look into it.
Welcome bonuses are excellent if you aren't going into debt over them. That's how the companies get away with it. If you are super responsible and use the card in replacement of your debit card for a few months or you make one big purchase at the beginning (like a down payment for a car), then you could wind up with a free $200 to $1000, and often more if you redeem the rewards for travel. Just remember, this is a one-time thing. Long-term fees and interest rates supercede this a hundred times over in the course of a decade if you aren't responsible.
There are also credit cards specifically for certain companies that have higher rewards for specific uses. You can get company credit cards through your favorite stores that you use all the time, like Target or Amazon. If you spend a lot of money there already, this could be useful. If you're running a business or do a lot of business with online transfers, you could get a Paypal or Venmo credit card for rewards on their platforms. These decisions are entirely specific to your needs, so look into them and do what you think is best.
Pay attention to the limit the card offers you at first. This number can always increase over time, but do take the initial offer into account.
Be sure to remember that the limit they offer you is not how much you should be spending. Ideally, you want to keep your spending under 10%, so take away a zero from the limit and consider whether that is right for you!
Ease Of Use
Do you want a chip card that can tap on the new chip reader machines? Do you want an app that can set up automatic payments from your bank? Do you want email notifications for transactions?
There are a lot of smaller factors that don't necessarily have to do with the financial side of the credit card that you may want to take into account. If there's something that's a deal-breaker for you, look for cards that have the easy-to-use features you want.
Tips For Finding The Best Credit Card
Looking at the credit card company website will only get you so far. They want you to see their welcome bonus and the nice, slick look of the card. They'll tell you if it's available for Apple or Google Pay, how fast the transactions are, and some other superficial information. Pay as little attention to this as possible as you don't really need this information to make an informed decision.
The info you really need is in the fine print, and if you don't want to dig through all of it, there are some people who can tell you about it.
Read Customer Reviews
As we said, the credit card company will tell you what they want to tell you. Customers tend to be more honest. If you're worried about making a late payment, first of all, try not to.
Second of all, look at what customers have said about late payments. If you see something like "I was one day late for a payment and got hit with a $20 fee", then you can still choose this card if you're very mindful about timely payments, but if this is a serious area of concern for you, it could be a deciding factor.
While that's one example, there are plenty of others. Read through these descriptions as well as you can, and don't just rely on customer reviews that are on the company's website, and the company has the power to get rid of negative comments.
Read Blog Reviews
Don't even try to guess the number of financial blogs that are out on the internet, because no matter your guess, it's too low. There is as close to endless information about credit cards on the internet as you can get.
Many blogs are dedicated to reviewing these cards, and it's excellent for consumers who want to stay informed. Use sources you trust, and read comments on here as well. Blogs like NerdWallet add new content every month about the best credit card offers out there.
If you find a couple of cards that you like, see who has better customer service, a more user-friendly app, or some other factors to make the final decision. Even a quick Google search of the card is better than nothing.
Don't just apply for a credit card if you don't actually want it. Remember, you don't want to apply for too many cards at once, as they will likely require hard inquiries, which will hurt your credit score.
If you're looking for a new credit card, ask your friends, family, coworkers, or classmates what their cards are like and if they are happy with them. Reading up online can get you pretty far, but nothing really compares to having firsthand knowledge from a regular user.
Now, if you're 18 years old, just entering college, and looking to build some credit, don't bother asking your parents or older relatives. They likely got their cards after years of building and establishing credit, and you likely won't get the same benefits as them.
Asking coworkers or classmates is probably best, as they are likely in a similar financial situation as you. If you're a student, look for the best student cards. If you're a business owner, look for the best company cards. When asking advice, be sure to ask about specific concerns of yours and how they feel the company has addressed them. This will help you best gauge whether or not it's right for you.
Consider Your Financial Situation
You may not be able to get the best rewards or lowest interest rates on a card if you have low credit or no credit at all. Because of this, it's important to take into account your current credit score and safe income before seeking out new credit cards.
If you're not currently financially stable, taking out high-interest debt on a credit card with a 25% APR is probably not the best financial decision you can make. If you're already in high amounts of debt (not just including mortgage or student loans), then it's probably best to focus on getting out of debt.
You may be able to get up to a $10,000 unsecured loan for as little as 8% interest if you find yourself struggling. Get a free consultation to find out if you qualify!
Either way, take all the factors of your current situation into account. What is your monthly income and budget? Will there be any big changes coming up like kids going away to college, moving to a new city, or changing jobs? If so, consider whether or not opening a new line is right for you.
No, not for clothes. There is no magic credit card that works for everybody, so keep doing your research to find the best credit card for your current financial situation and needs. Be sure to keep up to date with our latest news for your financial health and increase your approval odds by raising your credit score!