How do credit cards work?

A credit card is a revolving line of credit issued by a bank. The credit line is drawn down when you make a purchase and increases when you pay off balances. This cycle repeats itself over your card ownership lifetime, unlike a standard loan where it's a one-and-done transaction, you receive a lump sum loan and pay it off in one cycle. Transactions are deducted from your card's credit limit, which is the maximum amount that can be charged to a card. After a billing cycle, the card issuer will send a statement of your charges, the balance, the minimum payment amount, and the payment due date. If you don't pay off the full balance by that due date, then the card issuer can charge you interest.

Why should I get a credit card?

One reason to get a credit card is to build your credit. Your credit score can affect your life in many ways, including being a critical factor whenever you need to apply for any type of financing, and it's difficult to get an excellent credit score without using a credit card. Rewards are also a justifiable reason to carry a credit card since you can earn cash back and rewards on everyday purchases, ranging from travel to groceries, and more. Another popular reason to get a credit card is a 0% intro APR offer, either to finance purchases or to transfer balances from other credit cards so you can pay off your debt at a much lower interest rate.

How do I choose a credit card?

To choose a credit card, start by determining what type of card you want. You can figure this out by asking yourself why you're getting a new card. Common reasons include cash-back rewards, travel benefits, credit building, or balance transfers. Once you've narrowed down your search to one category of credit cards, compare the features of the best cards in that category. Focus on features that will be easy for you to use, as those will provide you with the most value. Continue narrowing down the results until you've found the card that's right for you.

Best Credit Cards: Top Rewards and Offers for February 2021

On our shortlist of the best credit cards for 2021, you'll find market-leading picks with perks that include lucrative rewards programs, big sign up bonuses, long 0% intro APR offers to avoid interest, and no annual fees. Add up the value of these benefits and it's not uncommon for the best credit card offers to pack in upwards of $1,000 in value. That's why we think it's smart to keep a credit card in your wallet. But to take advantage of the wide array of credit card benefits, you need to know where to get started. We've crunched the numbers on hundreds of credit cards and included only our select few top picks below. Read on to learn more about the hand-picked credit card offers that we would recommend to our closest friends and family.

The Ascent's best credit cards for February 2021:

Bonus and cash rewards flexibility: Bank of America® Cash Rewards credit card
Balance transfers and 0% intro APR for purchases: Citi® Diamond Preferred® Card
Bonus category cash back: Discover it® Cash Back
U.S. supermarkets and gas: Blue Cash Preferred® Card from American Express
Unlimited cash back: Chase Freedom Unlimited®
Travel sign up bonus: Chase Sapphire Preferred® Card
Cash back versatility with a big bonus: Chase Freedom Flex℠
Balance transfers and cash back: Citi® Double Cash Card – 18 month BT offer
Long 0% intro APR offer: U.S. Bank Visa® Platinum Card
Dining: Capital One® Savor® Cash Rewards Credit Card
Student cash back: Discover it® Student Cash Back
Building credit with cash back: Discover it® Secured
Limited or no credit history: Petal® 2 "Cash Back, No Fees" Visa® Credit Card

Ratings Methodology

The Ascent's 2021 Guide to Credit Cards

A credit card can be one of your most valuable financial tools -- if used correctly. When you know the right moves to make, you can maximize rewards and avoid decades of debt. Our credit card guide could help you learn these important skills -- or maybe even find your next favorite card.

How does a credit card work?

A credit card is a card that allows you to pay for purchases by borrowing money. The maximum amount you can borrow at one time is called your credit limit. The money you've already borrowed is your balance, and the amount you have left to borrow is your available credit.

At the end of each billing cycle, the card issuer will send you a statement listing the transactions you made. It will list your total balance, as well as the minimum payment due during that billing cycle. You must pay at least the minimum amount by the due date to avoid a late fee -- although it's a good idea to pay more than the minimum, if you can afford it.

Credit cards are most often used for purchases, but many of them can also be used for other types of transactions, such as cash advances and balance transfers.

How does credit card interest work?

Credit card interest is the fee a card issuer can charge when you borrow money with your credit card. The amount of interest charged depends on the card's annual percentage rate (APR). Many credit cards have different APRs for purchases, balance transfers, and cash advances.

The type of transaction also determines when your card issuer starts charging you interest. For example, cash advances almost always start racking up interest immediately. Purchases are different. Just about any top-rated credit cards will only charge interest for purchases that aren't paid off by the payment due date. Savvy consumers take advantage of this, pay in full, and never have to deal with credit card interest.

TIP

How to avoid paying credit card interest

Credit card interest is one of those unnecessary charges that you should do your best to avoid. There are two ways to accomplish this.

Pay off balances by the due date: The simplest option is to only use your credit card for purchases you can afford. Pay the entire statement balance on or before the due date. If you do this every billing cycle, you'll never end up with any interest charges.

Get a 0% APR credit card: With these credit card offers, you'll pay zero interest for the entire intro period. A 0% APR can apply to purchases, balance transfers, or both, so make sure you choose the right one. The APR will go up after the card's intro period ends -- it's important to pay off your balance by then.

Do you need a credit card?

Although a credit card isn't a necessity, there are several ways it can help you financially:

Improving credit: A credit card can help you build or rebuild your credit. When you use your credit card and pay the bill on time, your credit score will go up. This can help you qualify for financing, such as a car loan or mortgage, at a low interest rate.
Earning rewards: With rewards credit cards, you can earn cash back or travel points on every purchase.
Fraud protection: Legally, you're only liable for up to $50 in losses if your credit card is used fraudulently. But most credit card companies go even further. Many credit cards offer zero-liability policies -- meaning you aren't responsible for any fraudulent charges. You also don't need to worry about a thief draining your bank account through your credit card (which could happen if your debit card was stolen).
Extra perks and discounts: Credit cards can offer all kinds of benefits, such as extended warranty coverage on purchases or complimentary rental car insurance. Many of the best credit cards have features that can be worth hundreds of dollars or more.

How many credit cards should I have?

The right number of credit cards for most people is one. That's particularly important for cardholders using credit cards for rewards, since the juice may not always be worth the squeeze when carrying multiple cards and using each to optimize rewards for each spending category. It's even more true for cardholders carrying debt.

But this isn't necessarily the right mantra for everyone. There's no doubt that savvy cardholders carrying multiple cards can wring out a good amount of value.

When should I have one credit card?

You should stick to one credit card if:

You want to keep your finances as simple as possible.
You've never had a credit card before, or you've been using credit cards for less than a year.
You've had problems with missed credit card payments or overspending.
You value simplicity in managing your finances and don't want to worry about tracking multiple bills.

When should I have multiple credit cards?

You should carry multiple credit cards if you want more card benefits and you're confident in your ability to manage everything. There are some big advantages to having multiple cards:

You can carry cards that earn more in different areas, such as one flat-rate cash back card and another with bonus categories. This is a simple way to maximize your rewards.
You can use features from each of your cards and get more value overall. Instead of choosing between two of the best credit card deals, you can have both.
You'll have more available credit, which helps you maintain a lower credit utilization ratio. This can result in a higher credit score.

What is the best credit card?

The best credit card for most people is the Citi® Double Cash Card – 18 month BT offer. While this is an easy pick to recommend for many people, it's important to know that the market is packed with many valuable offers, ones included on this shortlist and not. The best credit card to have will depend on your unique situation.

We've chosen the Citi® Double Cash Card – 18 month BT offer as the best credit card of 2021 for these following reasons:

2% back is the highest cash back rate for all purchases: This card earns 1% cash back when you make a purchase and an additional 1% when you pay it off.
Cash back is flexible: While some people may find travel points valuable, everyone can use cash back.
There a $0 annual fee: It's always a plus when you won't need to pay anything extra for your credit card.
It includes a long 0% APR offer: The card's versatility shines even more with a 0% APR offer for 18 months for balance transfers.

What was the best new credit card of 2020?

The best new credit card of 2020 was the Chase Freedom Flex℠. This Chase cash back card offers several bonus categories where it earns 5% back, plus two more where it earns 3%. It also has a sign-up bonus of $200 for spending $500 on purchases within three months, a 0% intro APR on purchases for 15 months, and complementary protection against damage and theft of your cell phone. To top it off, you can get all these benefits for no annual fee.

Types of credit cards

Though there are many different types of credit cards, they all fall into certain categories based on their features and rewards programs. Here are the different types of credit cards and the best credit card deals right now within each category.

Cash back credit cards

These cards earn rewards that can be redeemed as cash. Depending on the card, you may be able to redeem your cash back as a statement credit towards your credit card balance, a deposit to a bank account, or as a check. You'll find cards that earn the same flat rate on every purchase as well as cards that earn extra in bonus categories among the best cash back cards.

Discover it® Cash Back: 5% back in rotating quarterly bonus categories you activate up to $1,500 quarterly spending cap, 1% back on all else
Blue Cash Preferred® Card from American Express: 6% cash back at U.S. supermarkets up to $6,000 annual spending cap, 3% cash back at U.S. gas stations and on transit, 1% back on all else
Citi® Double Cash Card – 18 month BT offer: Unlimited 2% back on every purchase (1% when you make the purchase, 1% when you pay it off)
Chase Freedom Unlimited®: Unlimited 1.5% cash back
Chase Freedom Flex℠: Up to 5% back in rotating categories you active each quarter ($1,500 spending cap quarterly)
Bank of America® Cash Rewards credit card: 3% cash back in a category of your choice and 2% back at grocery stores and wholesale clubs (on up to $2,500 in combined bonus category purchases per quarter)
Capital One® Savor® Cash Rewards Credit Card: 4% unlimited cash back on dining

Compare more picks: Check out The Ascent's best cash back credit cards

Balance transfer credit cards

This type of card offers a lower, introductory APR on balance transfers. Many of the top balance transfer cards have a 0% intro APR on balance transfers and intro periods can last for well over a year. If you want to refinance credit card debt and save money on interest, a balance transfer card is ideal.

Citi® Diamond Preferred® Card: 18-month 0% intro APR on balance transfers
U.S. Bank Visa® Platinum Card: 20 billing 0% intro APR on balance transfers and purchases

Compare more picks: Check out The Ascent's best balance transfer credit cards

0% APR credit cards

Cards in this category have a 0% intro APR that applies to purchases. They're a smart choice if you need to buy something expensive, but you can't afford to pay in full upfront. The most popular 0% APR credit cards also often have those intro deals for a year or longer.

Compare more picks: Check out The Ascent's best 0% APR credit cards

Travel rewards credit cards

With travel cards, you can redeem your points or miles for free or discounted travel. There are also quite a few top travel credit cards that offer extra travel perks, such as free access to airport lounges or hotel upgrades.

Chase Sapphire Preferred® Card: 2 points per $1 on travel and dining

Compare more picks: Check out The Ascent's best travel rewards credit cards

Rewards credit cards

This category includes every credit card that earns purchase rewards. With so many cards to choose from, you'll find a diverse mix of rewards credit cards that earn cash back, travel points, and store rewards.

Compare more picks: Check out The Ascent's best rewards credit cards

Student credit cards

If you're in college, you can get started on building your credit with a student credit card. Even though these cards are for students, there are some excellent perks to be found with the best student credit cards. Some cards include free credit score tracking and money back for good grades.

Discover it® Student Cash Back: 5% back on rotating quarterly bonus categories you activate up to $1,500 quarterly spending cap, 1% back on all else

Compare more picks: Check out The Ascent's best student credit cards

Secured credit cards

You need to pay a security deposit to open a secured credit card, which is typically used for building or rebuilding credit. The security deposit is often (but not always) equal to your starting credit limit. High-quality secured credit cards can usually graduate unsecured cards, meaning you get your deposit back if you make enough on-time payments.

Discover it® Secured: Up to 2% cash back and free FICO® Score tracking

Compare more picks: Check out The Ascent's best secured credit cards

Looking to rebuild credit?: Check out The Ascent's best credit cards for bad credit

If you want to:	You should consider a:
Finance an upcoming purchase	Card with a 0% intro APR on purchases.
Pay off credit card debt faster	Card with a 0% intro APR on balance transfers. We give bonus points to cards that waive balance transfer fees, too.
Earn cash back and rewards on all spending	a card that offers 1%-2% cash back on all purchases
Travel internationally	Travel card with rewards and no foreign transaction fee
Make business purchases	Business credit card
Build or rebuild credit	Any credit card can help you here, but cards that offer free FICO® Scores are a good pick.
Have the highest approval odds	Secured credit card

How to choose a credit card

Any time you're going to apply for a credit card, you want to make sure you choose the right one. Here's how to pick a credit card:

Decide which type of card you want: This will narrow down your credit card offers considerably, so it makes sense to do this first. If you're most interested in, for example, earning travel points, then there's no need to look at the best credit card offers for a 0% intro APR.

Compare credit cards in that category: Once you've chosen a type of card, it's time to compare credit cards side by side. Here's how to compare credit cards and decide which option is best for you:

Figure out the features that are most important to you. This will depend on the type of card you're choosing. Let's say you need a balance transfer card. The features to look at would be the length of each card's balance transfer offer and its balance transfer fees.
Check for any annual fees on the cards you're comparing. If you're stuck between two credit cards that work for you, one of them may have a cheaper annual fee.
Use secondary features as your tiebreaker. These are the features that aren't quite as important but still have value. Secondary features could include sign-up bonuses or a FICO® score for free.
Read the fine print. All credit cards display common card features in a standardized format, including to outline the APRs and lineup of fees. Keep an eye out for the following fees and compare them to other cards: Annual, balance transfer, cash advance, late payment, and foreign transaction.

How to apply for a credit card

The simplest way to apply for a credit card is online, where you can complete an application in minutes. Here's how to apply for a credit card online:

Choose a credit card and click "Apply Now": You'll find this link on the credit card page.
Fill out the required information: Card applications ask for your personal information, including your name, mailing address, date of birth, and Social Security number. They also ask for financial information, including your income. Some companies might ask about your net worth.
Submit the application: You may receive an instant decision of either an approval or a denial (hopefully approval). The card issuer could also put your application under review, meaning it needs more time to decide.

How to use a credit card

Whether your credit card helps or hurts you all depends on how you use it. To ensure that your credit card provides value and doesn't get you in debt, here are a few key guidelines:

Use your credit card regularly: To build your payment history and increase your credit score, you need to use your credit card for at least one purchase per month. That's just a minimum, though. If you have a rewards card, consider putting all your purchases on your credit card to earn as much back as you can.
Only charge what you can afford: It's safest to only purchase what you can afford with the money you have your bank account. This will help you avoid overspending and debt. The exception is when you have a card with a 0% intro APR on purchases, since those are designed for financing expenses.
Pay on time and in full: Late payments can lead to fees, interest charges, and a lower credit score. Missing a payment does not help your credit score; carrying a balance does not help your credit score. It's important to always pay on or before the due date. Once again, 0% APR credit cards are an exception. You can carry a balance on those during the intro period without interest (though you still need to make the minimum payment).
Take advantage of your card's perks: All of the good credit cards have their share of benefits. Spend some time learning what your card's benefits are so that you can use them when you need them.

What are the best credit card companies?

Discover was award the best rankings in JD Power's U.S. Credit Card Satisfaction study. We also covet Discover cards for their focus on high rewards, low fees, and solutions for an array of cardholder needs.

American Express notched a podium position in the second slot, just behind Discover. This isn't surprising knowing that American Express has a cult-like following for many of its cards with valuable perks and standout service.

Credit Card Company	JD Power Score
1. Discover	842
2. American Express	838
3. (tie) Capital One	807
3. (tie) Chase	807
5. Barclays	806

Source: J.D Power U.S. Credit Card Satisfaction study

Credit card terminology

Annual percentage rate (APR): The rate charged for carrying a balance on a credit card, expressed as an annual percentage. With credit cards, the APR is the same as the interest rate.

Balance: The amount owed on a credit card, including all unpaid transactions and fees. The balance at the end of a statement period is called the statement balance.

Balance transfer: Moving a balance from one credit card to another. This is usually done when the new card offers a lower APR. Not every credit card offers balance transfers, and many of the cards with this feature charge a balance transfer fee.

Cash advance: Withdrawing cash from a credit card, most often through cash advance checks, using the card at an ATM, or by wiring money with the card. Cash advances usually have a higher APR and start accruing interest immediately, so it's a poor way to use a credit card.

Credit card: A payment method issued by a bank and connected to a revolving line of credit. The cardholder can use their credit card for purchases and possibly other types of transactions, although this depends on the card.

Credit limit: The credit card's spending limit. This can vary based on the type of transaction. On credit cards that offer cash advances, there is typically a lower credit limit for cash advances than for purchases. A transaction that would exceed a card's credit limit will be declined unless the cardholder has opted to allow over-the-limit transactions (and any potential fees that come with them).

Credit score: A rating of a consumer's creditworthiness. The score indicates how likely it is that they will make bill payments on time and repay what they borrow. Credit scores are calculated based on the consumer's financial history.

Interest: A fee charged for borrowing money. The APR determines how much interest a credit card company can charge on balances.

Minimum payment: The minimum amount a cardholder can pay by the due date to remain current on their credit card bill and avoid a late fee.

FAQs

A credit card is a revolving line of credit issued by a bank. The credit line is drawn down when you make a purchase and increases when you pay off balances. This cycle repeats itself over your card ownership lifetime, unlike a standard loan where it's a one-and-done transaction, you receive a lump sum loan and pay it off in one cycle.
Transactions are deducted from your card's credit limit, which is the maximum amount that can be charged to a card. After a billing cycle, the card issuer will send a statement of your charges, the balance, the minimum payment amount, and the payment due date. If you don't pay off the full balance by that due date, then the card issuer can charge you interest.
One reason to get a credit card is to build your credit. Your credit score can affect your life in many ways, including being a critical factor whenever you need to apply for any type of financing, and it's difficult to get an excellent credit score without using a credit card.
Rewards are also a justifiable reason to carry a credit card since you can earn cash back and rewards on everyday purchases, ranging from travel to groceries, and more.
Another popular reason to get a credit card is a 0% intro APR offer, either to finance purchases or to transfer balances from other credit cards so you can pay off your debt at a much lower interest rate.
To choose a credit card, start by determining what type of card you want. You can figure this out by asking yourself why you're getting a new card. Common reasons include cash-back rewards, travel benefits, credit building, or balance transfers.
Once you’ve narrowed down your search to one category of credit cards, compare the features of the best cards in that category. Focus on features that will be easy for you to use, as those will provide you with the most value. Continue narrowing down the results until you've found the card that's right for you.

To recap, here are the best credit cards of 2021

The Picks
Card	Rating	Great For
Bank of America® Cash Rewards credit card	Rating image, 4.5 out of 5 stars. 4.5 stars	Great For: Bonus and cash rewards flexibility
Citi® Diamond Preferred® Card	Rating image, 4.5 out of 5 stars. 4.5 stars	Great For: Balance transfers and 0% intro APR for purchases
Discover it® Cash Back	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Bonus category cash back
Blue Cash Preferred® Card from American Express	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: U.S. supermarkets and gas
Chase Freedom Unlimited®	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Unlimited cash back
Chase Sapphire Preferred® Card	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Travel sign up bonus
Chase Freedom Flex℠	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Cash back versatility with a big bonus
Citi® Double Cash Card – 18 month BT offer	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Balance transfers and cash back
U.S. Bank Visa® Platinum Card	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Long 0% intro APR offer
Capital One® Savor® Cash Rewards Credit Card	Rating image, 4.5 out of 5 stars. 4.5 stars	Great For: Dining
Discover it® Student Cash Back	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Student cash back
Discover it® Secured	Rating image, 5.0 out of 5 stars. 5.0 stars	Great For: Building credit with cash back
Petal® 2 "Cash Back, No Fees" Visa® Credit Card	Rating image, 4.5 out of 5 stars. 4.5 stars	Great For: Limited or no credit history