36% of Americans Prioritize Interest Rates When Shopping for a Credit Card. Here's Why That's a Bad Idea

What's the most important factor you look for when choosing a credit card? If you're like many Americans, the first thing you'll check out is the interest rate.

When asked that question, 36% of Americans said interest rates were most important, according to The Ascent's study on Americans' credit card preferences. That was far ahead of any other factor. It was followed by rewards (selected by 18% of Americans), annual fees (15%), and 0% APR windows (10%).

This makes sense in theory. Credit card interest can cost you a lot of money. By looking for cards with lower interest rates, you'd pay less on any balances you carry from month to month. But this actually isn't the best way to choose a card, and it could end up costing you.

Why you shouldn't choose a credit card based on its interest rate

Some people have the misconception that a credit card is a good way to borrow money. However, credit cards have high interest rates; the average is currently above 20%. Even cards from credit unions, which are known for offering lower interest rates, are charging annual rates of 12% to 15% or more.

When looking for a new credit card, you shouldn't plan on carrying a balance from month to month. It just doesn't make sense financially because of how much credit card interest costs. The optimal way to use a credit card is to always pay off the full balance by the due date.

If you need to borrow money, then most credit cards aren't the right financial product. The only exception is 0% APR credit cards. These have a 0% intro APR on purchases, and intro periods can last 12 months or longer. If you can pay off your balance within the intro period, these are a great way to borrow money for big purchases. Personal loans are another option, as these normally have much lower interest rates than credit cards do.

If you're planning to pay your credit card in full every month, then the interest rate doesn't matter. It may go against what you've heard in the past, but if you always pay in full, you won't be charged interest. You're much better off focusing on other factors, such as rewards, that will help you find the best credit cards for you.

How to choose the right credit card

Knowing how to choose a credit card is important so you can find the one that will save you the most money.

First, ask yourself if you're going to need to carry a balance. If so, stick to 0% intro APR credit cards. For example, if you have large expenses that you'll need to pay off over time, a 0% APR card could help with that. Or, if you have credit card debt you want to refinance, look into balance transfer credit cards.

If neither of those situations apply to you, then you can ignore interest rates entirely. In this case, the best option is typically rewards credit cards. These earn rewards on your spending in the form of cash back, points, or miles. Here are a couple of lists to check out with top options, depending on whether you want to earn cash back or travel rewards:

• Best cash back credit cards
• Best travel rewards credit cards

For an example of how much you can save this way, let's say you get a cash back card that earns an unlimited 2% on purchases. You spend $25,000 per year with your credit card. That's $500 per year in cash back, all because of the card you used for your regular spending.

The key to making this work is to never carry a balance on your credit card. If you do that, then a card's benefits are what's important, not its interest rate.