Like picking out a suit or dress, finding the right credit card isn’t always the same for one person as it is for another.
Personal factors such as a credit score, if you’re trying to improve a score with a credit card, if you’re looking to save money by transferring a card’s balance, where you spend your money so you can earn the most rewards points, and an ability to make payments on time are some things that can influence which credit card is best for you.
For example, a credit card offering rewards points for travel may be a perfect fit if you charge thousands of dollars and pay the bill in full each month so you can avoid interest charges. But for someone who can’t afford to pay off their credit card and has a revolving balance, a rewards card can look like a bad suit on them and leave the interest charges they’re paying negate the rewards.
Here are some of the types of credit cards available to consumers with varying needs, from the most basic to high-end perks.
First, check your credit score
A credit score is one of the top factors credit issuers use to determine what type of card they’ll approve you for. The higher the score, the less of a risk the customer is and the more likely they are to pay their credit card bill. A good credit score will also lead to better interest rates on credit cards, and on home and auto loans.
There are many ways to check a credit score, which is listed on your credit report. Start at AnnualCreditReport.com for a free report each year from each of the three main credit bureaus. It’s also a good idea to monitoring your credit report monthly.
Having too much debt, and using too much credit, can lower your credit score.
Check the report for errors and fix any errors by contacting the credit bureaus. Having too much debt can lower a credit score, as can other things such as using too much of your available credit, not paying bills on time, having a short credit history and not having a good mix of credit. Work on improving those factors and your score should improve.
Look at your financial needs
The next step in picking the best credit card for you is determining which type of credit card you need.
If you have poor or middling credit, then a card that helps improve your credit is a good idea. If you spend too much on credit card interest and fees, then look for a card that has low rates. Do you travel a lot and can afford to pay off your credit card in full each month? Then a rewards card may work best for you.
Here’s a breakdown of the types of credit cards available within those three general types of credit cards:
Cards that build credit
If you’re looking for your first credit card or one that can help rebuild your credit, then you may want a basic credit card or a student credit card that is unsecured. Secured credit cards and store credit cards are other options.
Standard credit cards
For credit beginners who want a simple card without frills or rewards, a standard credit card, also called “plain-vanilla” credit cards, are a good way to build credit.
The credit limit may be low to start with, but increases as you make payments over time. Outstanding balances at the end of the month will face finance charges, and a minimum payment is due each month to avoid a late payment penalty.
Student credit cards
College students with little or no credit history can usually be approved for a student credit card just by being enrolled in an accredited four-year university. The cards are unsecured, meaning you don’t have to put down a deposit to get one.
As what is usually a first credit card, these cards often have low credit limits, and are unlikely to have many perks such as rewards or low interest rates on balance transfers. Students may need to have a job or other access to money, including scholarships, or may need a co-signer for the card.
Student credit cards are usually your first credit card and often have lower credit limits.
These cards usually don’t have an annual fee, mainly because they don’t offer rewards that make a fee worthwhile.
Look for a card that lets you build your credit and upgrade to a card with better terms. This will help keep your card open longer and improves the age of accounts you have, a key factor in a credit score.
Secured credit cards
If you’ve never had credit before, or have damaged credit, a secured credit card can help build a good credit record.
Secured cards require paying a security deposit, which is typically the credit limit allowed on the card. So if you put down a $500 deposit, that’s the limit of what you can spend on the card.
If you don’t pay the credit card bill, the amount due could be subtracted from the deposit. The balance is returned to you if you close the account or have the account upgraded. Some cards put your security deposit in an interest-earning CD.
Many secured cards don’t report credit card payments to the credit bureaus, so check with the card provider to see if your on-time payments are reported.
Limited purpose cards
Some credit cards can only be used at certain places, such as store credit cards and gas credit cards. A Macy’s credit card, for example, can only be used at that store. You can’t use an Exxon gas card at the grocery store.
Limited purpose cards usually have high interest rates, so it isn’t a good idea to carry a balance on them. Still, they can be reported on your credit report and can help raise a credit score over time.
Cards that save money
If you’re paying high interest rates on a credit card or are looking to transfer a credit card balance to a zero-interest balance transfer card, then some cards may be a good fit for you.
0% APR balance transfers
These are getting harder to find and you’ll need very good or excellent credit to get one, but an introductory zero percent interest card that switches to a low interest rate after about a year can be beneficial in a few ways.
It can be used to transfer a balance from a high-interest card and then paid off during the interest-free period, or can be used only for emergencies or if you have an irregular income and carry a balance from time to time.
Be sure to check how long the low or 0% APR period lasts. If you can’t pay off your debt during that time, you’ll have to pay interest on the balance.
Also check the card’s balance transfer fees. You may be limited to how much debt you can move over and may be charged a fee to do so. The annual percentage rate charged for a transfer may be different than the purchase APR.
Business credit cards
Business owners can save money by transferring balances too, and can make their businesses easier to run by keeping business and personal transactions separate.
A personal credit history is considered when approving a business credit card.
From travel, cash back and other rewards such as first crack at buying concert tickets before they’re released, rewards credit cards offer benefits that can make having a credit card worthwhile. They’re the fun part of credit cards.
But that fun can come at a price. If you don’t pay the balance in full each month you’ll pay interest charges. Rewards cards often have higher APRs than other cards, and will usually have annual fees. All of these costs will cancel out any rewards you receive.
On the plus side, rewards cards offer large sign-up bonuses and give you points, miles or cash back on money you’re spending anyway. The less money you have to spend to qualify for a sign-up bonus, the better. Free flights, hotel stays, checked luggage and other travel benefits can easily make the annual fee an afterthought.
To get the most out of a rewards card, look at your spending patterns. Some cards offer their highest rewards for travel, such as three points per dollar spent on airlines versus one point per dollar spent elsewhere.
Look for a card without foreign transaction fees so that you can use it while traveling abroad, and one that has chip-and-PIN capability instead of the chip-and-signature technology that’s standard in the U.S.
When redeeming rewards, consider how difficult a card makes it to use the awards you’ve accumulated. Are award seats on planes limited? Can you use points for any type of travel, such as on a rental car? Is there an expiration date on rewards? Are you OK with being loyal to the hotel chair or airline that the card is affiliated with?
If your travel dates aren’t flexible, you may want a card that isn’t tied to a single airline or hotel chain, but is a general travel credit card with flexible redemption options.
Some rewards cards have rotating rewards categories, and others reward some types of spending over others. One card may award three points for shopping at a gas station or supermarket, and only one point at restaurants. Another card may offer the opposite.
A cash-back card may be best if it offers the most money back on categories you spend the most on, such as at restaurants. Most cash-back cards pay 1 to 2 cents per dollar spent, which can be used as a statement or account credit.
The bottom line
The best credit card is one that doesn’t put you deeper into debt. It has low fees and interest rates, offers rewards that you want, and if it has an annual fee, it more than makes up for it with a sign-up bonus or excellent rewards.
To have it remain the best card in your wallet or purse, use it only for what you can afford and be sure to pay off your credit card bill in full and on time each month. Doing so can only improve your credit score, which should lead to better credit card offers in the future and better perks.