Credit cards can be a great way to build credit or earn rewards, but only if you choose the right one. There are many different types of credit cards available, each with its own pros and cons, so it’s important How to choose the right credit card before you apply.
Interest rates, reward points, annual fees, cash-back options – all of these factors will play into how you use your card and what kind of card makes the most sense for your situation. Let’s take a look at some of the key features to take into consideration on How to choose the right credit card.
Standard credit cards
Most credit cards come with a standard interest rate. This is an annual percentage rate (APR) that you’ll be charged for carrying a balance from month to month.
To choose a credit card with a lower APR, look for those with introductory rates, as well as those without penalty fees and rewards programs.
If you make your payments on time and don’t carry a balance from month to month, then you don’t have anything to worry about. However, if you fail to pay off your debt each month, then high-interest rates can wreak havoc on your budget.
Regardless of what type of credit card you choose—standard or rewards—it pays to shop around before signing up for one.
The bottom line is that debit cards are less risky, generally offer fewer benefits and fewer rewards, and should never be used for purchases you can’t afford. Plus, debit cards actually help protect your credit score in a unique way.
When you use a debit card to make a purchase with a bank or store account, rather than taking money directly from your bank account, it’s essentially like an IOU.
A purchase made with a debit card takes maybe a day or two to show up on your monthly statement or the same day, depending on the bank, because it must first be approved by your bank and then processed.
When a transaction is later declined by your bank because of insufficient funds in an account, that can negatively impact your credit score. They can approve your purchase even if you don`t have the balance available bit then the bank will charge you what they call overdraft.
Student credit cards
When you’re just starting out in College, it can be tough to get approved for a regular credit card. If you can’t qualify for plastic, consider opening a Student Credit card account instead.
While they may not offer some of the perks of traditional cards (like rewards points or cashback), Student Credit cards are virtually guaranteed—the money on your account is put directly into an FDIC-insured bank account—and there are fewer fees or none associated with them than regular credit cards.
The perks are that they have lower rates than regular credit cards. The main idea of these`s cards is to start building credit in their early years as a student.
Many cash-strapped consumers decide to forgo credit cards completely. If you’re in a bind and need access to immediate funds, it might make sense (at least temporarily) to use a prepaid card instead of your credit card.
Prepaid cards come with no credit checks and don’t require a bank account; what you put on them is what you can spend.
For example, if you plan on taking a vacation and don’t want to rack up debt or pay interest, using a prepaid debit card makes sense—you load it up once before you leave, then tap it when you need cash.
They are not linked to your bank account so it depends only on what amount of money your load that card with. You can purchase these cards even in the supermarkets.
Secured credit cards
A Secured Credit Card requires a security deposit to be approved first. The bank can then can give you a line of credit depending on the amount of deposit they are asking for.
Let’s say the security deposit is $49.00 dollars but your approved credit line is $200.00 dollars. Usually, people that do not have established credit could start with this kind of card. Some prepaid cards offer points in exchange for transactions.
Some of these points can be redeemed for cash, travel tickets, or even buying in big stores. If you’re looking for a credit card that offers rewards but aren’t sure how to choose one, consider switching over to a Regular credit card, after having built a good credit score of course.
Many people don’t like having debt hanging over their heads; by using a prepaid card, you won’t have to worry about owing money when it comes time to pay your bill, as long you have the balance to do so.
Credit Cards for Travelers
If you travel a lot, a credit card with travel benefits may be right for you. There are a variety of different options out there.
You might want a card that offers free checked bags on an airline of your choice, or maybe one that provides priority boarding—or even one with airport lounge access or hotel stays.
The majority of this kind of card has the benefit to accumulate points for mileage which at a certain point will get you free airline tickets depending on how many points you have.
A credit card with no foreign transaction fees is also ideal if you’re planning to use it internationally or at merchants who don’t accept American Express.
If you’re not sure where to start looking, ask friends and family which cards they have and whether they’d recommend them—sometimes word-of-mouth can be just as helpful as online research when it comes to selecting travel rewards cards.
Credit Cards with different annual fees
Credit cards with no annual fee are great for people who only use their credit cards every now and then. If you want a card for those unexpected emergencies, but don’t have a lot of spending money each month, these cards could be a good fit.
However, if you plan on paying your balance in full each month or will carry a balance from one month to another, you’ll want to look into other cards that come with different types of rewards and can actually save you money.
Usually, the more benefits the card has, the higher the annual fee is. Most importantly, if you’re going to be carrying debt from one month to another, make sure you’re able to keep up with minimum payments or pay off your balance in full so it doesn’t incur any interest.
Cash Back or More Points: What is better
Cash Back or More Points? That depends. The answer will depend on how much money you spend and how many points you plan on redeeming for flights or hotel stays example.
Generally, cashback cards offer higher rewards than travel and airline cards, but there is a limit to just how much you can earn in a year: $6,000 in purchases (for example).
As such, if you find yourself spending more than $6,000 per year on your credit card, it’s probably time to sign up for a travel card (if not sooner).
Travel rewards credit cards allow you to earn free trips based on your spending habits. And while it may sound too good to be true—it’s not.
In summary, there are a few key things you should keep in mind when it comes to How to choose the right credit card. In general, look for cashback rewards and other perks that meet your needs.
If you’re concerned about protecting your credit score, pick a card with no annual fee and pay off your balance every month. If you travel a lot for work or school, a premium travel rewards card may be worth considering, even if it has an annual fee.
And if you’re always worried about carrying too much debt on your cards, don’t spend more than you can afford to pay off each month and opt for one with low-interest rates and fees.