CardClub Education

Choosing the Right Credit Card

The Most Important Decision You'll Make Today

Content image — There's no single "right" way to use your credit, but there are plenty of "wrong" ways. Learn how to take maximum advantage of the cards in your quiver, with CardClub.

Introduction:

Credit cards can be a fantastic financial tool, if chosen wisely. With so many options available, finding the right card can feel overwhelming. Whether you're looking for a way to build credit, earn rewards, or just want a convenient payment method, this guide will help you choose the best credit card for your needs.

Understand Your Spending Habits

Where do you spend the most?

Are groceries, dining, or travel your biggest expenses? Do you own a business, or regularly incur certain reimbursable expenses for your job? Identifying your major spending categories can help you find a card that offers the best rewards for your lifestyle.

Do you carry a balance?

If you tend to carry a balance month to month, consider a card with a low interest rate or a 0% introductory APR offer. Or, a balance transfer card, if you're looking to offload an existing balance.

How often do you travel?

Frequent travelers might benefit more from a travel rewards card that offers miles, points, or travel specific perks. In this case, air miles and travel points are often worth significantly more than their equivalent cash value when used with approved travel partners.

Consider the Card’s Rewards Program

Different cards offer different rewards. Here’s a quick breakdown:

Cashback Cards:

Cashback cards are designed to give you a small percentage (usually 1-3%) back on every purchase. They're great if you want simple rewards that you can use for anything, or if you don’t want to put a great deal of effort into tracking your points.

Travel Rewards Cards:

Frequent Flyer? Earn miles or points that can be redeemed for flights, hotels, and other travel expenses. Ideal for those who travel often and want to maximize value, as travel points are usually worth significantly more than their stated cash value.

Points-Based Cards:

Points-based cards offer points for certain categories of purchases that can be redeemed for various rewards like merchandise, gift cards, or even travel. They differ from regular cashback cards in that, while cashback cards give a flat rate, these cards give variable rewards. You might receive 2% back on groceries, and 3% back on taxi services.

Evaluate Fees and Interest Rates

Check the Annual Fee:

Some cards charge higher annual fees in exchange for more benefits. Make sure the rewards outweigh this cost, and make sure you plan on using the card enough to gain rewards that outweigh the fees.

Look at the APR:

We always recommend paying off any card in full before the end of the month. But, if you carry a balance, a lower APR will save you money on interest. If you use your card to finance business purchases, look for low-APR options, or consider a formal loan with your local bank.

Strategic Spending

Consider potential fees for balance transfers, foreign transactions, and late payments. These fees are insidious, and creep up faster than you’d imagine. Don’t let your rewards be erased by technicalities!

Assess Your Credit Score

Your credit score plays a significant role in determining what kind of credit cards you qualify for, and whether or not they have benefits like those stated above. Cards with better rewards and lower interest rates often require good to excellent credit. Here's what to consider:

Know Your Score:

If your score isn’t where you’d like it to be, work on improving it by paying bills on time, reducing debt, and correcting any errors on your credit report -- you'd be surprised how often mistakes happen, and many customer service reps will reduce or eliminate charges for friendly customers.

Improve Your Score:

We always recommend paying off any card in full before the end of the month. But, if you carry a balance, a lower APR will save you money on interest. If you use your card to finance business purchases, look for low-APR options, or consider a formal loan with your local bank.

Look for Additional Benefits

Beyond the basics, many credit cards offer additional perks that can add value:

Sign-Up Bonuses:

Some cards offer bonus rewards for spending a certain amount within the first few months.

Introductory Offers:

Look for cards with 0% APR for a set period, which can be useful for balance transfers or large purchases.

Extra Perks:

Consider cards with benefits like travel insurance, purchase protection, and extended warranties.

Think Long-Term

Finally, consider how the card fits into your long-term financial goals. Ask yourself:

Will this card help me build credit?

Some cards offer bonus rewards for spending a certain amount within the first few months.

Can I upgrade later?

Look for cards with 0% APR for a set period, which can be useful for balance transfers or large purchases.

Will I Always Be Able To Afford This?

Credit cards make it easy to succumb to lifestyle creep. And, they're difficult to cancel once you're signed up. Closing a line of credit can even damage your score, so make sure you treat this decision as semi-permanent.

Conclusion:

Navigating rewards programs can be an exhausting ordeal. Every card is different, and the details of individual programs fluctuate wildly. Rewards cards often come with high APRs, and if you don't pay your balance in full every month, the interest quickly negates any rewards. Many rewards cards also carry steep annual fees, payable upon receipt of the card, turning the chase for rewards into a game of catch-up.

Before applying, make realistic and conservative calculations to determine if you’d earn enough rewards to actually outweigh the fees. Also, determine if your current income can sustain the level of spending required to obtain the rewards in the first place.