With so many options available, choosing a credit card isn’t as simple as signing up for whichever card happens to be popular at the moment. Instead, you should consider things like your credit score, preferred features, and spending habits.
After all, there are many different types of credit cards meant for different purposes. Making the best choice is about not only knowing your approval odds, but also how you intend to use the card after signing up. Using a step-by-step approach for how to choose a credit card will help you make the right decision for your situation.
Where To Begin When Choosing a Credit Card
Choosing a credit card is a matter of understanding which type of credit card works best for you. You’ll want to consider a number of factors, including:
• Your credit score
• How you plan to use your new credit card and which features you’ll need
• How the card stacks up to other options
• The card’s interest rates and fees
• Which rewards you want
• Any sign-up bonuses offered
Read on to learn more about each of these items and what specifically to look for.
Checking Your Credit Score
Checking your credit score should be one of the first steps you take before applying for a new credit card. One of the best ways to know your approval odds is to check your score.
One way to do so is to use AnnualCreditReport.com. This website allows you to request a copy of your credit report from each of the major credit reporting bureaus: Experian, Equifax, and TransUnion. Federal law allows you to request one copy of your credit report from each reporting bureau per year.
However, you may want to check your credit score more often than once per year, especially if you are in the process of building your credit. Fortunately, several big banks allow you to check your FICO score — the most widely used credit score — on a monthly basis. This includes Discover Credit ScoreCard and CreditWise from Capital One. Neither service requires you to be a customer.
There are several credit scoring models available, but most lenders use FICO, so getting this score can be a good way to gauge your chance of approval. These checks won’t guarantee you’ll get approved for a credit card, but they can help you get a better sense of where you stand. Plus, pulling your credit report won’t hurt your credit score.
Identifying the Features You Need
There are many different types of credit cards, each of which has its own set of features. Identifying the features you need can help you find the right credit card, as how credit cards work varies depending on the type.
Credit Builder Credit Cards
Some credit cards are meant for those who are working on building their credit. This could include college students, those trying to repair their credit, or anyone with little to no credit history.
In those cases, you might need a secured credit card or a student credit card. Secured credit credit cards require a security deposit, usually around $200, that is fully refundable. Your credit limit is usually equal to your security deposit, so the card issuer has little risk of losing money. Student credit cards, on the other hand, are usually unsecured and may have special perks for students.
Here are some features to look for in credit builder credit cards:
• No annual fee: If you are working to build your credit, annual fees could make things more difficult.
• Credit limit increases: Credit limits often start low with these cards; some offer credit limit increases if you use your card responsibly.
• Free credit score: Some credit builder cards offer free credit score monitoring to let you know where you stand.
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Balance Transfer Credit Cards
Balance transfer credit cards are ideal for consolidating and paying off debt. Thus, the key with this type of card is finding one that keeps fees as low as possible:
• 0% introductory APR: Balance transfer credit cards may come with low or 0% balance transfer APR for a specified introductory period, sometimes lasting a year or more. Some even have a separate 0% APR introductory period for purchases. This can allow you to avoid paying much in interest for a certain period of time and instead put your money toward paying down the principal balance.
• Balance transfer fees: These cards often charge separate balance transfer fees, which you should be aware of if you plan to transfer large balances.
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Rewards Credit Cards
Credit card rules say that you shouldn’t get a card just for the points. However, rewards credit cards may come with a variety of benefits. These include cash back, points and miles, and various perks, such as rental car insurance and airport lounge access. You can redeem points and miles for statement credits, gift cards, flights, and hotels, so you’ll have to decide what’s most important to you.
Here are some rewards credit card features to consider:
• Sign-up bonuses: Some rewards credit cards include sign-up bonuses that can be worth hundreds of dollars.
• Low or no annual fee: While some of these credit cards have annual fees, not all of them do.
• Rewards categories: Rewards credit cards generally let you earn a percentage of your purchases in cash back or points/miles. Some have higher earning rates for certain categories, such as groceries or travel. Look for one that earns a lot of points where you normally spend the most.
• Other perks: These cards can come with a variety of other perks, from UberEats credits to free hotel nights. If you never travel, for example, you may not be interested in free hotel stays.
Narrowing Your Choices by Doing Research and Asking Questions
The key to how to pick a credit card is understanding how you want to use it. While some credit cards are more like generalists, doing many things somewhat well, others are niche cards that are great in certain scenarios. Consider what’s most important to you and how much you need certain features.
Once you’ve decided which type of credit card you want, the next step is to compare some of the best options. For instance, if you want a rewards credit card and don’t want to pay a high annual fee, look for no annual fee rewards credit cards. For balance transfer credit cards, you can look for ones with the lowest fees, including a lengthy 0% introductory APR. Also keep in mind you don’t need to rely on one card to meet all of your needs — here’s a primer on how many credit cards you should have.
Identify a handful of cards that look like good candidates based on your research. Once you have two to three cards that seem like the right fit, you might want to submit a pre-qualification form. This process will give you a hint about whether you might qualify — and it won’t affect your credit score. Pre-qualification doesn’t guarantee approval, but it will help you know where you stand.
Familiarizing Yourself With the Interest Fees and Rates
Having a basic understanding of interest rates and fees will help you avoid paying more than expected to use your new credit card.
Different types of credit cards tend to come with varying interest rates. For instance, the minimum annual percentage rate (APR) for travel cards tends to exceed 15%. However, the maximum APR for these credit cards can be slightly lower than the maximum for 0% APR and low-interest credit cards.
Of course, fees also matter. Balance transfer cards might have a 0% introductory period, but a fee may apply every time you initiate a balance transfer. Depending on the card, other fees may be involved, such as late fees and penalties, annual fees, and foreign transaction fees. Be sure to review all relevant fees before signing up for and using a credit card.
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Deciding Which Rewards You Want
The answer to ‘what credit card should I get?’ may be a rewards card, but you’ll then need to decide which type of rewards you’ll want to earn. There are a few different types of rewards that credit cards can offer:
• Cash back: With a cash back rewards credit card, you will earn a percentage in cash on each eligible purchase you make with your card. You could get a flat rate across categories, or you may earn a higher rate in specific categories. If you want to earn rewards across spending categories and don’t want to worry about calculating and converting, cash back might be the right rewards option for you.
• Points: Another way to earn credit card rewards is through points. You’ll earn a certain number of points for every dollar spent, with the rate and redemption options varying depending on the issuer. The perk of points is that you can redeem them in a number of different ways, including cash back, travel, charitable donations, statement credits, gift cards, and more.
• Miles: If you’re a frequent flier, you might prefer earning airline miles. Credit cards that allow you to earn miles let you redeem your rewards for flights and other travel-related perks, such as hotel stays or access to airport lounges.
Looking at Sign-Up Bonuses
Some credit cards feature sign-up bonuses to attract new customers. Usually, you have to spend a certain amount in the first three or four months of opening the card. If you meet the minimum spending threshold within that time frame, you’ll receive cash, points, or miles as a reward. The trick is to ensure you can meet the spending threshold on time.
There can be a wide range of bonus amounts; for instance, the Chase Freedom® Student credit card has a $50 bonus for making a purchase in the three months. On the other end of the spectrum is the American Express Platinum Card, which at the time of writing offers 100,000 points after spending $6,000 in the first six months.
Most sign-up bonuses fall somewhere in between. The Chase Freedom Flex, for example, has a $200 bonus after spending $500 on purchases in the first three months. The Citi Rewards+® Card, which is good for balance transfers, offers a 0% APR for 15 months. But it will also give you 20,000 points after spending $1,500 in the first three months of account opening.
Choosing the Card With the Highest Overall Value
There are several credit cards available that offer similar benefits. In those cases, you will want to compare them directly to one another and find features that give one card the edge. Here are a few things to consider for each type of credit card:
Student and secured credit cards:
• Credit limit increases: Some student credit cards will automatically increase your credit limit if your account remains in good standing.
• Flexible credit lines: Some secured credit cards give you access to a larger credit line than your deposit.
0% introductory APR or balance transfer credit cards:
• No late fees or penalties: Some credit cards waive these fees, which might be helpful when transferring balances.
• Installment plans: Some balance transfer cards offer installment plans to help you repay your balance over time.
Rewards or travel credit cards:
• Low spending threshold: Requirements to earn sign-up bonuses can vary; look for one that’s well within your budget.
• Points transfer: Some travel credit cards let you transfer points to airlines or hotels, which can lead to better redemption rates in some cases.
How Your Credit Score Affects Your Chance of Approval
Your credit score is one of the biggest factors in determining whether you’re approved for a credit card. If you have poor or no credit, you probably won’t get approved for a card that requires very good to excellent credit, regardless of other factors, given what a credit card is and how the approval process works.
Luxury credit cards, for example, may require a credit score of 670 or higher. If your score is higher, you might be approved for one of these cards (though approval is not guaranteed). If your credit score is below 670, however, your approval odds will probably be quite low.
While credit score is a big factor, it may not be the only one a card issuer considers. Issuers might also look at things such as your employment status and income. This is one of the reasons that a good credit score doesn’t guarantee approval.
Still, a better credit score can help you secure the credit card you want. As such, you might consider taking steps to build your credit score before applying for a credit card, such as by making on-time payments or lowering your credit utilization ratio.
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What Comes Next After Choosing a Credit Card?
If you’ve already submitted pre-qualification forms, you should have some idea about your approval odds for each card. As mentioned, those forms do not guarantee approval but can serve as a valuable guideline.
Once you have chosen a credit card, it’s time to apply. Some general steps are to:
1. Visit the card issuer’s website and click apply.
2. Fill in the required information.
3. Submit your application.
In some cases, you may receive instant approval (or denial). In others, the card company will need more time to review your application. If approved, you can usually expect to receive your card in the mail in seven to10 business days.
If you are denied, you can call the card’s reconsideration line and provide additional information. Perhaps you forgot some additional sources of income that could help your case. Anything that may help is worth mentioning.
Deciding which credit card is best for you can be a long and arduous process. However, once you have a better understanding of what you need, the process of choosing a credit card doesn’t have to be so complicated. Some credit cards are simply better than others, and picking them is a surprisingly easy choice after comparison shopping.
Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.
How does your credit score determine the card to choose?
Your credit score is one of the most important factors in deciding which credit card to choose. For example, if your credit score is poor, you probably won’t be approved for a card that requires good to excellent credit.
How do you choose a credit card for the first time?
In most cases, the best choice for your first card should have no annual fee. Some good choices are student credit cards (for students) or secured credit cards. These cards are ideal for building credit and often have low fees.
What is the most important factor when choosing a credit card?
The most important factor when choosing a credit card is probably how you intend to use it. For example, a premium credit card may offer excellent benefits for the frequent traveler, but someone who just wants to earn cashback on groceries may not benefit from travel perks.
Photo credit: iStock/Eva-Katalin
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
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