Published in: Credit Cards | Nov. 1, 2018

How to Choose a Credit Card in 9 Easy Steps

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 choosing a credit card, chances are good you'll be using that card for a very long time. In fact, a recently survey revealed 25 million consumers have kept the same credit card for a decade, while another 20 million have never changed the card they use.  

While you can -- and perhaps should -- change cards more frequently, 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.

Because you'll probably have a long-term relationship with your credit card provider, it's important you pick the right one. 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 decide what your purpose is for getting a credit card, as this will shape your approach to finding the right one for your situation.

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 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 use, 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 if 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 don't plan to carry a balance, maximizing rewards you can earn by using your credit card is a smart move. That means finding a card that's well matched to your spending.  

There are many types of cards that give bonus rewards points for certain kinds of purchases. These include cards that provide bonus rewards for:

  • 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'll want your card to fit your lifestyle, so look back over your past few months of credit card statements to identify trends showing the types of purchases you make most frequently.

4. Consider the type of rewards most useful to you

If you're shopping for a rewards card, it's not only important to match your spending to your card but it's also essential to make certain your card offers rewards you'll actually use. It does little good to earn a bunch of free airline miles if you aren't traveling any longer. It's also silly to sign up for a credit card rewards program that requires you to quickly redeem rewards at times that don't work for you.  

Instead, 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're planning a big road trip, earning points you can redeem for gas might be ideal. Or, you could just opt for cash back so you can use the money to do anything you'd like.

5. Research the cards that are right for you

Once you have an idea of what you're looking for, research the specific type of card that's of the most interest to find the best offers within that card category. Depending on your situation you may be specifically 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% APR on purchases if you plan to use your card for a big purchase that you won't pay off immediately and you want to save on interest.
  • 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 hope to use credit as part of operating a company.
  • A secured card if you are trying to rebuild credit after an adverse event, such as a bankruptcy .
  • A student credit card if you're still in school and just getting started building your credit.

Armed with information about what kind of card you're looking for, you can move on to researching specific card offers.

6. Compare card offers and terms

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

  • APR: This is the interest on the card you'll pay if you carry a balance. Many cards have a low promotional APR either for purchases or balance transfers, then interest goes up after you've had your card for around 12 to 18 months.
  • Rewards: How much do you earn on the card? It's typically pretty standard for rewards to equal around 1% to 2% of general 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 set minimum (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 applying for a card and spending $1,000 within a designated time.
  • Annual fee: There is sometimes an annual cost just to have a particular credit card. It can be worth paying if you'll earn enough rewards and perks to offset the cost of the 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 if you need one.
  • Other perks: Does your card provide advanced 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 sign up for TSA Pre✓®? These are just some of the perks card issuers offer to entice customers to choose them.  

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 if 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, if you owe $3,500 and can afford to pay $300 monthly, you'd have your debt paid off in 13 months on a credit card charging 12% interest and you'd pay a total of $241 in interest. But, if you upped the interest to 22%, you'd pay off the card in 14 months and pay $475 in interest. If the annual fee on the card with the lower rate was less than $234, it would be worth paying it.
  • 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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