Finding the right credit card can be a challenge. Because credit cards offer such a variety of signup bonuses, rewards, and benefits, there is at least one that fits your lifestyle. Before applying for your next credit card, determine how this card will help you reach your goals.
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How to Choose the Right Card for You
Everyone’s situation and goals are different, so the credit card that is right for your friend may not be right for you. Baskin Robbins would be jealous of all of the “flavors” available in the world of credit cards.
When choosing a new credit card, there are several criteria to consider:
- Welcome bonus after getting approved
- Rewards or cash back earned on purchases
- Perks and benefits included
- Foreign transaction fees
- Introductory APRs on purchases and balance transfers
- Annual fees
One of the most lucrative benefits of a new credit card is the welcome bonus. Banks offer these incentives to attract new customers away from competing credit cards. Depending on the card you choose, these welcome bonuses can be worth up to $500 or even more.
To earn your welcome bonus, you’ll need to use your new credit card when making purchases. Some banks will give you the bonus after making one purchase, while others require spending thousands of dollars within a certain timeframe (typically three months). For the average person, you can meet these requirements simply by using your new credit card to make all of your normal monthly purchases.
We all use our money differently. And banks recognize that, so they design credit cards to provide bonus rewards when you spend at certain stores. A credit card may give extra rewards for spending at restaurants, on groceries, at the gas station, or other categories.
It is rare for a credit card’s bonus categories to match up exactly to the way you spend, which is why many people have multiple credit cards to maximize the number of rewards that they earn. For example, they’ll use one credit card for dining, another for groceries, a third for everything else.
Think about how you spend your money. Are there certain stores or categories of purchases where you spend the most? If something sticks out, it pays to find a credit card that includes that as a bonus category.
In addition to earning valuable rewards, many credit cards include attractive benefits and perks. These perks include travel benefits, purchase protection, cell phone protection, and more.
Travel credit cards offer incredible perks like Global Entry reimbursement, airport lounge access, and free checked bags that save money or improve your travel experience. Many hotel credit cards include automatic elite status and a free night every year that you renew your credit card.
Some credit cards protect your purchases in different ways. Purchase protection reimburses you in case your items are lost, stolen, or damaged shortly after buying them. Return protection ensures that you’re covered in case the retailer won’t accept your return. Price protection covers you when the price drops right after you’ve bought it. And extended warranty protection provides an extra year of coverage beyond the manufacturer’s warranty.
Cell phone protection covers your phone in case of damage, loss, or theft. Coverage limits and deductibles vary from card to card.
When traveling internationally, you want a credit card that waives foreign transaction fees. Banks normally charge up to 3% when making purchases in foreign countries. This can be an unwelcome surprise upon your return when you realize that you’ve been paying extra on every purchase that you’ve made.
You don’t even have to travel to be hit with a foreign transaction fee. If you’re at home in the U.S. and purchase something from a foreign website, your bank may charge you a fee. And you won’t even know it until you look at your purchases online or when your statement arrives.
If you plan on traveling to a foreign country or making purchases online, having a credit card with no foreign transaction fees is key to avoiding unwanted fees.
When you have high-interest rate debt or need to make a large purchase, a 0% APR promotion can help reduce or eliminate your interest payments. Purchase promotions allow you to make purchases for a pre-defined period of time without being charged interest.
Balance transfer promotions give you an opportunity to transfer a balance from another account to eliminate the interest that you’re paying. There are no fees for purchase promotions, but a fee of 3% to 5% of the balance transferred is typical. Although you are paying a one-time fee, it is usually far less than the interest rate you’re currently paying on the debt.
With both types of promotions, you’ll still need to make minimum payments each month on your balances to keep the offer active. If you don’t, the offer could be taken away and the interest rate would revert to the standard APR.
Many people say that you should avoid paying an annual fee. And that advice makes sense for some people who have a tight budget. However, many credit cards that charge an annual fee offer benefits that are valued at many multiples of the amount that you pay.
For example, imagine paying a $95 annual fee for a hotel credit card that gives you a free night every year. That is certainly worth it if you can redeem that free night for a hotel that is worth $200 or more. And that is before counting all of the other benefits that come with the card.
There are plenty of great no annual fee credit cards as well. These cards typically have lower welcome bonuses and earn fewer rewards than cards that charge a fee. But, there are many no-fee choices that offer attractive bonuses, rewards, and benefits without putting a dent in your budget.
Are All Points and Miles Worth the Same Amount?
The value of airline miles and hotel points are not the same across all loyalty programs. It helps to have a basic understanding of how many miles and points it costs to redeem for an award and compare that with the number of rewards you’ll earn when you make purchases. The math can get complicated sometimes.
The best way to approach this it is to think of someplace that you want to travel to. Look at how many miles it takes to book a flight or how many points for a free stay. Then add up the rewards that you’ll earn from the welcome bonus and your normal spending. This will help you determine how quickly you can book a free vacation.
Some people don’t want the hassle of miles and points, so they opt for a flexible points credit card or a cash back credit card. Flexible points credit cards earn rewards that can be redeemed for cash, gift cards, or travel. And when someone is more comfortable with miles and points, they can be transferred to one of many airline and hotel transfer partners.
Cash back credit cards are straightforward programs where you earn cash back on every purchase that you make. You have complete control on how you want to use your rewards. The money can pay off a bill, be saved for the future, invested in an IRA, or used for a nice dinner. The choices are endless.
Does Applying for a Credit Card Hurt Your Credit?
Applying for a new credit card affects your credit score in multiple ways. These changes can both hurt and help your credit score over time.
When you apply for a new credit card, your credit score will typically decline 3 to 5 points because of a new inquiry. The inquiry will stay on your credit report for about two years, but the impact will only be felt for 6 to 12 months.
Additionally, opening a new account will affect the average age of your accounts. Depending on your credit history, the effect could be negligible or more noticeable. As the account ages, the impact will lessen and could eventually help you if it becomes a credit card that you hold for many years.
Do I Need Good Credit to Apply For a New Credit Card?
Every credit card has a target consumer in mind. There are credit cards available for people of all different credit circumstances. It doesn’t matter what your credit score is, you can find a credit card that fits your credit situation.
Many of the credit cards with the best rewards and benefits are designed for people with the best credit scores. People with average credit can also find credit cards that offer attractive benefits and rewards.
Those who are building their credit or looking to recover their score can start building a solid credit history with cards designed specifically for them. Some of these cards even automatically upgrade or offer a higher limit after showing a pattern of responsible credit behavior.