Published in: Credit Cards | Nov. 1, 2018

How to Choose a Credit Card in 9 Easy Steps

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Want to make sure you have the right credit card in your wallet? Follow this nine-step guide to find the card that’s perfect for your situation.

A person holding a fan of credit cards and choosing one.

Image source: Getty Images

When you sign up for a new credit card, chances are good that you'll be using that card for a very long time. A recent survey showed that 25 million Americans have kept the same credit card for a decade, while another 20 million have never changed the card they use.

While you can change cards more often, switching the card you use can be a major hassle if you've stored your card on online accounts and set up auto-pay using the card.

You'll probably have a long-term relationship with your credit card provider, so it's important to pick the best credit card for you. This comprehensive nine-step guide to how to choose a credit card will make the process easy -- so just work through the steps to find the right card for you.

1. Decide what you'll use the card for

First and foremost, you need to identify your main reasons for getting a credit card. If you want your credit card for general spending, you'll likely be looking for a card with the lowest interest rate or the most generous rewards, depending on whether you'll be carrying a balance. But if your goal is to use the credit card for other purposes, such as debt consolidation or business spending, you'll need to research different card options.

Creditors specifically market different cards for different consumers, so it makes sense to find a card tailored to your desired use.

2. Determine whether you'll be carrying a balance

If you plan to carry a balance, a low interest rate should always trump sign-up bonuses and generous rewards programs. Since credit card interest typically tops 15% annually while you usually earn around 1% to 2% in rewards for most purchases, it's easy to see why you're better off prioritizing interest paid.

This is especially true if you can find a credit card that offers you a promotional 0% APR on purchases. If you can repay what you borrow before the promotional rate expires -- or can transfer the balance when the rate rises -- you won't have to pay any interest.

3. Look at your spending habits

If you plan to pay your bill off in full every month, then you'll want to maximize the rewards you earn by using your credit card often. That means finding a card that's well matched to your spending. 

Many credit cards give you bonus rewards points for certain kinds of purchases. Those spending categories might include:

  • Travel purchases, such as hotels or airline tickets
  • Gas
  • Groceries
  • Restaurants
  • Business spending

Some cards rotate their promotional categories, which means at different times of the year you may get extra rewards for gas, groceries, restaurants, or travel. Others keep their program the same year round, so you'll always get bonus points for hotels, gas, or whatever the card promotes.

You want your card to fit your lifestyle, so look back at your past few months of credit card statements to see which types of purchases you make most often.

4. Consider the type of rewards most useful to you

If you're shopping for a rewards card, it's important not only to match your spending to your card, but also to make sure your card offers rewards you'll actually use. It doesn't do much good to earn a bunch of free airline miles if you rarely travel. It's also silly to sign up for a credit card rewards program that requires you to redeem rewards at times that don't work for you.

So think about what could add the most value to your life. If you're trying to save for retirement, choosing a card that gives you cash back deposited into an investment account makes sense. If you take a lot of road trips, earning points you can redeem for gas might be ideal. Or you could just opt for cash back and use the money for anything you'd like.

5. Determine what type of credit card is right for you

Once you have an idea of what you're looking for in a credit card, you can narrow your options down to a handful of categories. Depending on your situation, you may be looking for:

  • A balance transfer card if your goal is to consolidate credit card debt or reduce interest paid on existing debt.
  • A card offering 0% introductory APR on purchases if you plan to use your card for a big purchase that you won't pay off immediately.
  • A cash back card if you want to get your rewards as a statement credit so you reduce your monthly bills.
  • A travel credit card if you want to earn airline miles or points for hotels.
  • An airline or hotel card if you want to earn points or freebies with a specific airline or hotel.
  • A business card if you need to make purchases for your company.
  • A secured card if you're trying to establish a credit history or rebuild your credit after an adverse event such as a bankruptcy.
  • A student credit card if you're still in school and just starting to build your credit.

Once you know what kind of card you're looking for, you can move on to researching specific card offers.

There are many different credit cards within each category, so you'll want to compare your options carefully. Some of the key things to look for include:

  • APR: This is the interest rate you'll pay if you carry a balance. Many cards have a low promotional APR either for purchases or for balance transfers, and then the APR goes up after you've had your card for around 12 to 18 months.
  • Rewards: Credit card rewards often equate to between 1% and 2% of your spending. You may find more generous rewards for specific categories of purchases, such as 5% cash back on gas or groceries.
  • Minimum payments: Find out how much of your balance you're required to pay each month. Typically, you have a choice between paying a fixed minimum amount (such as $25) or a percentage of the balance due.
  • Sign-up bonus: Many credit cards offer a special bonus for meeting certain requirements, such as spending $1,000 within three months of opening the account.
  • Annual fee: There is sometimes an annual fee just to have a particular credit card. It may be worth paying if you'll earn enough rewards and perks to offset that fee.
  • Other fees: Find out if you must pay a foreign transaction fee if you use your card while traveling abroad. You may also want to look into late fees in case of a missed payment, balance transfer fees if you plan to transfer a balance, or fees for cash advances.
  • Other perks: Does your card provide advance access to concert and event tickets, or do you get roadside assistance? Does it offer rental car insurance or travel insurance? Will the card pay for you to enroll in TSA Pre✓®? These are just some of the perks card issuers offer to entice customers.

You may also want to find out if other customers have generally had a good experience with the card issuer by reading reviews or checking the consumer complaint database maintained by the Consumer Financial Protection Bureau (CFPB).

7. Decide whether paying an annual fee makes sense

When you're comparing a card offer, you'll need to determine if paying an annual fee makes sense to get a lower interest rate or more generous rewards. To make this determination, you'll have to do the math. This means comparing:

  • The sign-up bonus: If a card offers a $100 sign-up bonus and has a $95 annual fee, you're better off with that card than with a card that offers no sign-up bonus and no annual fee. You can always cancel the card after a year, or call the credit card company and ask them to waive or reduce the fee.
  • The interest charges you'll pay: If you're carrying a balance and can get a much lower interest rate by paying an annual fee, it's often worth it. For example, say you owe $3,500 on a credit card charging 12% interest, and you can afford to pay $300 monthly. You'll have your debt paid off in 13 months, and you'll pay a total of $241 in interest. But if you upped the interest rate to 22%, you'd pay off the card in 14 months and pay $475 in interest -- about twice as much. So, if the annual fee on the card with the lower rate were less than $234, then it would be worth paying.
  • The perks: When a card charges $100 but offers generous perks, the card may be worth it if the perks are valuable enough -- as long as you'll use them.  
  • The added rewards: If one card has a $100 fee but you get 2% cash back and the other card charges no annual fee but you get 1% cash back, you're better off paying the fee if you spend more than $10,000 since the higher rewards cover the fee and then some.

Don't automatically disregard a card with an annual fee until you've checked to determine if it will cost you more or less in the long run.

8. Find out about qualifying requirements

Finding a card you love doesn't do you much good if you can't qualify for it based on your credit score.

While most creditors won't specifically state their minimum qualifying requirements, card issuers typically make clear when their card offerings are restricted to people with stellar credit or when their card is open to people looking to improve their score.

9. Apply for your card

Finally, the last step is to apply for the card you've chosen. You can apply online and get an answer within anywhere from a few minutes to a few days, depending upon the card issuer and your credit history.  

Once you have your card, don't assume you need to use the same one forever. Around once every year or two, you should go through these steps again to make sure you still have a card that's aligned with your spending needs and that provides rewards you're actually excited about using.

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