With so many credit card options out there, it may be hard to choose a new one.
Are you loyal to a particular airline or hotel chain? Perhaps you want to redeem credit card points as statement credits. Or you’re a big grocery or gasoline spender. Savvy consumers may be interested in innovative uses like paying down loan debt or investing. Is the interest rate important, an annual fee a dealbreaker?
If you can responsibly manage more than one credit card — and if you’re like most Americans, you have more than one — you can use different cards to optimize rewards (cash back, points, or miles), annual statement credits, and 0% and low introductory APR offers.
When deciding on a new credit card that is best for you, it boils down to two basic questions: What do you want from a card? And how strong is your financial history?
Here’s a glance at the credit card options available and provisos to consider.
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Rewards Credit Cards
If you are good about paying off your card every month and never incur interest, you might consider a rewards card. These cards may offer sign-up bonuses and give consumers rewards in the form of miles, cash back, or loyalty points.
There are variations on a theme, such as:
• Bonus offer + 0% period for purchases
• A set dollar amount in travel or bonus miles if you meet the initial spending requirements
• Flat-rate cash back
• Customizable rewards
A few cards offer an eye-opening 5% cash back in rotating categories, up to a limit (such as 5% back on $1,500 spent quarterly, after which all other purchases earn 1% cash back), and you’ll usually have to manually activate the offer each quarter.
But you can often lessen the work involved and earn more in total cashback rewards with a flat-rate cashback credit card, when all purchases earn the same amount.
Frequent travelers lured by premium travel rewards cards will want to weigh the perks against an annual fee of $450 to $550.
New reward offerings have bubbled up, such as allowing cardholders to put cash back toward loan payments, and are brewing, like increasing card acceptance for rent payments and offering cryptocurrency-related rewards.
When choosing a rewards card, think about your spending habits and redemption preferences, be aware of your credit score (these cards usually require a good score), and pay off your balance each month — rewards cards typically have higher APRs than balance transfer cards.
If you fall behind on payments or carry over balances, all the perks and rewards are unlikely to be worth it.
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Cards for Those With Limited or Damaged Credit
For college students with little or no credit history, there are student credit cards.
If you don’t have great credit, there are also secured credit cards. Generally, they require a deposit from the user. A secured credit card functions like a normal credit card except that it has a backstop: The user puts up an amount of money that the issuer will then use if the cardholder defaults.
The lender offers a certain amount of credit based on the promise that the user will pay off the balance in full every month.
If your account is upgraded to an unsecured account, thanks to good habits, or is closed in good standing, your deposit is returned.
Both of these options can help someone build credit and could lead to a card with more perks if the holder is diligent about paying off the balance every month.
Then there’s at least one brand of card that considers an applicant’s banking history in lieu of their credit score, has no annual fee, and comes with rewards.
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Prepaid Debit Cards
A secured credit card is primarily intended for building credit, whereas a prepaid debit card is good for budgeting and convenience but does not affect your credit.
A prepaid debit card is preloaded with your own money, typically through direct deposit, cash or check deposits, or online transfers from a checking account.
The card is used for transactions until the money runs out. Since there is no line of credit, you cannot run up debt on the card.
This is a great option for a young person who needs to learn how money works or for adults with a bad credit history, though it will not improve their credit scores.
Credit Cards That Save You Money on Interest
If you’re prone to carry a balance month to month, you might want to consider a low-interest card. While these types of credit cards don’t come with bells and whistles like airport lounge access, it is the financially prudent option if you have an irregular income or you carry a balance each month.
It might be best to look for a card that offers an initial APR of 0% and then an ongoing low interest rate.
Keep in mind that low-interest credit cards usually require a good credit score to qualify. Generally, the better your credit score, the lower your interest rate. The lowest advertised APR isn’t always what an applicant gets.
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Balance Transfer Credit Cards
If you are in credit card debt, a balance transfer credit card could help you pay off your debt at a lower interest rate.
Interest rates and terms vary widely with balance transfer credit cards. A balance transfer card will often come with a 0% APR introductory period, but once that ends, the interest rate shoots up.
It’s important to pay attention to the fine print if this is an option you’re considering.
The Takeaway
Choosing the most rewarding and suitable new credit card can become a research project. It’s best to think about your spending habits, needs, credit history, APR, any annual fee, and perks.
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.
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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