How to Choose a Credit Card. Step-by-Step Guide

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There is no such thing as one size fits all when it comes to credit cards. You want to find one that will fit you and your needs.

It can be hard and overwhelming at first but it will get easier as you learn about your credit profile and how to read it. We are here to help you learn and navigate to the right credit card. Let’s start by going over key features all credit cards have and what they mean. This is the only way we can find the right fit for you.

1. What Is Your Credit Score?

Before you can even start looking at credit cards it is good to know what your credit score is. When you know your credit score it gives you a clear idea of what you may qualify for and what your options are.

If you think you have to have a perfect score to get a credit card, that is not true. But if you want a top-quality credit card then you will need to have a credit score in the good range. The better the credit card the more perks it will have.

Are You Checking Your Credit Report

It is a good rule of thumb to always check your credit score, but you will want to take it a little further and check your whole credit report. First, we want to make sure everything reported is accurate.

Check your credit history and see what it is that is impacting your score and if there were any errors reported on the score. If you see anything amiss make sure you dispute it or contact the company reporting the items on your report. This could be a game-changer and really push your credit score up.

If you do not find any issues with your report you may still find how to improve your credit score with services like TransUnion, Credit Karma, and Credit Nerd. They offer free services to help you stay on top of your credit score and help you with increasing it.

A Poor Score Doesnt Mean a No

Hey! Don’t let that poor credit score discourage you from getting a credit card. Let’s talk about options.

You can always go with a secured credit card if you have a poor credit score. All this means is that you will have to put a security deposit down, usually around $200.

The credit company will match your amount to help you get credit without them worrying about losing money. This route lets you prove your creditworthiness while allowing you a credit line. As you keep making on-time payments you can eventually get an increase in your credit line.

With enough on-time payments and low credit usage, you can eventually get pre-approved for standard credit cards and higher credit lines.

2. Decide On a Card Type You Want

As we have mentioned, credit cards do not come as a one-card-fits-all. There are five different categories to look into when deciding what type of credit card you want.

While there are hundreds of different cards out there they all usually fall into one of the five categories: low-interest rate, balance-transfer, credit-building, rewards, and business.

Let’s go over what each category means.

Low-Interest Cards

This might be the hardest credit card to get because you need to have a credit score between good and excellent to get approved. These types of cards are usually used for years. people keep these for the long haul.

Not only do they have low-interest rates but they could potentially end up saving you hundreds if not thousands of dollars in savings due to those rates.

Low-interest cards also come with their own perks like higher credit limits than any other card and also points for cashback.

Balance-Transfer Cards

These types of cards people usually use to pay off other high-interest cards or loans. Balance-transfer cards usually come with low interest and no annual fee but only for the introductory period, which can be anywhere between 12-48 months.

You would want to use this card only during the introductory offer because once that expires the fees and rates will skyrocket.

Credit-Building Cards

As we have mentioned above the secured credit cards are great for repairing credit scores but also for those needing to build credit, like students.

The interest rate on these types of cards may be a bit higher than the average card but that is because you are trying to prove to the lenders that you are trustworthy of a credit card. You may start off with a smaller credit line but once you start to make on-time monthly payments your line can increase.

Most lenders will want to see six months of on-time payments before they allow credit increase. Just keep your credit usage low and stay on top of your payments and you will get pre-approved for other credit cards in no time.

Rewards Cards

A rewards credit card can have a lot of good perks. For example, cashback towards all your purchases.

There are a lot of different rewards cards like earning miles for your airfare, cashback for things like gas and dining out, or even money towards Disney World. You will need to have a credit score of at least Fair to be able to qualify for the rewards card.

3. Compare the Best Matches

Now that we have figured out what kind of card we want and you know what you may qualify for, it’s time for us to compare the top choices we have. To do that we will want to look at the key credit card features:

Annual percentage rate (APR)

The APR is one of the most important things to consider when getting a new credit card. This is the amount of interest you will have to pay on any balance on your card. The APR in 2021 was around 15% depending on your credit score, the rates could be as low as 7% or as high as 36%.

Late Fees

Not only is it important to pay your bills on time because they impact your credit score, but you also get penalized by the company. Every time your bill is late you will have to pay a late fee and these can add up pretty fast. Some have fees up to $40 depending on the balance of the card. So do not fall behind and get buried in even more debt.

Rewards

How nice would it be to be able to receive cashback on things we buy every day! Maybe even save airline miles for a nice vacation. Either way, getting rewards is a plus, so be sure to compare each card’s rewards. Not all the rewards are the same or offer the same amount of points and cashback, read the fine lines.

Balance-Transfer Fees

Remember we use balance transfers to help us pay off high-interest rate credit cards or loans. To be able to use this card there will be a fee. This may be a one-time flat fee or interest charge based on the transfer amount.

Annual Fees

This is a fee that is charged every 12 months and not every credit card will have one. The cost can range anywhere between $30 to over $100 depending on the lender and card line amount. Sometimes you will not have any fees during the introductory period and other times there might not be any fees at all.

Sign-Up Bonuses

Another thing to look for when looking for a new card is if they have any special promotions like a sign-on bonus. Welcome offers could be anything from cash towards your statement to even more miles to pay for a flight. Either way, you get these bonuses just for signing up.

Cash-Advance Fees

Have an emergency and need cash fast? Your credit card lenders will let you take out cash but they will charge a fee for borrowing cash. The fees are usually the same amount the ATMs charge, but some could be a lot more. Always check before borrowing cash.

Foreign-Transaction Fees

If your like the rest of us and like to travel and use your credit card, make sure you know your fees. Many credit cards have foreign transaction fees because you are using your card in another country. Be careful because they will sneak in and pile up real fast. Always check to see what those fees are before using your card.

Reporting

What most people don’t know is that not every credit card will report your on-time payments to the three major credit bureaus. Make sure you stay informed. Use TransUnion or Credit Karma to make sure all your payments are documented properly.

4. Apply for Your New Credit Card

That was a lot of information we threw your way. Have you found your credit score, reviewed potential credit cards, looked for any reward offers, and found the ones you want to apply for?

Now it is time to apply for a credit card!

You can use a reputable site like Transunion to review options and apply, or even go to the credit cards website to apply. If you get approved you should get a response anywhere from a few minutes to a few hours.

Sometimes they may call you to make sure it is really you and do a security check to avoid fraud and identity theft.

If you do not get approved you will get a written statement in the mail within a few business days, explaining the reason for their decision.

Congratulations if you got approved. Be sure you are not using more than 30% of your credit line and that you are making payments on time. This will help you be able to get an increase in your credit line in a few months, should you need it.

Also, it is important to remember that getting a credit card will cause a hard inquiry on your credit report. This might lower your credit score a bit and the inquiry will stay on your credit report for two years.

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