February 20, 2023
Not sure which credit card to get? You’re not alone. The abundance of credit card options available to consumers can make it feel impossible to know which one is best for you. But there are ways to make the decision easier.
Ready to sort through all the noise? Here are four tips for choosing the right credit card.
If you pay off your full statement balance every month, the interest rate on the credit card — commonly referred to as the annual percentage rate (APR) — won’t matter. If you carry a balance, however, that APR will determine how much more money you owe. The higher the APR, the higher the cost. The lower the APR, the lower the cost.
Because of this, it’s smart to identify the APR of each credit card you’re considering and factor this into your final decision. The best way to save money is still to always pay off your entire balance each month. But in the event a major life situation makes this difficult, or you simply forget to pay one month, it’s in your best interests to have a lower interest rate.
A credit limit is the amount of money you can borrow on your credit card. Notably, however, these limits aren’t fixed per card — they can range from a few hundred dollars to tens of thousands of dollars depending on your credit history. Two people with the same credit card may have different credit limits. But while your credit history will influence your credit limit, it also doesn’t mandate a fixed limit across credit cards; you might be offered different credit limits from different credit card companies.
No matter how high or how low your credit limit is, maxing out your credit card can hurt your credit score. It’s better to use 30% or less of your credit limit — a credit utilization rate that can improve your score. This is why it’s smart to plan what you’ll use a credit card for and choose one where you can make all your purchases without coming close to your credit limit.
Between flight miles, cash back, hotel points, and more, rewards are a fantastic benefit of using your credit card. In fact, rewards are the primary reason 1 in 3 people use credit cards to begin with. And rewards programs vary tremendously by card.
Want to maximize your credit card rewards? Make sure you compare rewards programs before choosing your card. That way you can choose the one that makes the most sense for you. Try avoiding cards with rewards programs that cost money — there are plenty of credit cards that offer a rewards program for no additional charge — and make sure the rewards offered align with your interests. If you love traveling, for instance, you may benefit most from a rewards program that maximizes flight miles and flight credits with your favorite airline.
Note: There is a possibility that credit card rewards are scaled back if not eliminated entirely in the next few years as the Credit Card Competition Act is still in the works. While the legislation failed to pass in 2022, it was reintroduced in June 2023. If it passes, this blog post will be updated to reflect the most up to date information about credit cards and their rewards programs.
Just as you want to pay as little credit card interest as possible, you also want to pay as little fees and penalties as possible. The way to do that is to research the fees and penalties your prospective credit cards have — and that may mean reading the fine print.
Not every credit card will have an annual fee. But many do. These fees are around $100 on the low end and multiple times that on the higher end. Additionally, credit cards generally have late payment penalties and a number of other fees and penalties, such as a foreign transaction fee and a penalty for exceeding your credit limit.
If you want to keep more money in your pocket, it’s important to identify and compare the fees and penalties across credit cards so you can choose and use your credit card wisely.
Just as a hammer can be used to build a house or bash your thumb, a credit card can help boost your credit score or hinder it. It all depends on how responsibly you use it. Because a credit card is simply a tool; it’s neither good nor bad on its own. That’s why it’s important to ask yourself if a credit card is right for you — if you have the financial discipline to use it well.
Much like an installment loan, credit cards can help people overcome unexpected financial hardship by allowing them to pay for things they don’t have the money for. But it’s worth noting there are risks involved. Because while a credit card may allow you to delay your payment, you’re never off the hook completely. The longer you wait to pay off your balance, the more interest, fees, and penalties you get charged. Plus, your credit score may start sinking.
But if you’re able to use your credit card responsibly — not spending more than 30% of your credit limit, making payments on time, etc. — your credit score could go up. And you’d avoid most fees. And you’d accumulate great rewards, pay little to no interest, and more.
Remember, a credit card is simply a tool. So ask yourself if you can use it well. If you can’t, start building proper money habits so that one day you can. But if you’re ready, choose the right credit card and reap the rewards!
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