Which credit card is best? Actually, in a landscape filled with attractive credit card offers, there’s no such thing as the “best.” However, it is possible to find and choose the credit card that’s best for you.
Here are four steps that can help you choose a perfect-for-you credit card.
Step 1: Review Your Credit
Credit cards are different, but they all have something in common. When you apply, the lender will check your credit to see if you qualify for the account. If you qualify, the lender will use that same report and score to set the terms of your account, such as the APR and credit limit.
However, you don’t have just one credit report. You have three.
Until you choose a specific card to apply for, you won’t know which report and score the lender will review. This means you should review all three of your reports before you apply for a new credit card (or any other type of financing, for that matter).
- Don’t blindly apply for credit cards without a plan.
- Check your credit before you apply for any new account.
- Understand how lenders see your credit.
- Do your homework to get the best offer available to you.
If you haven’t already claimed your free annual credit reports, you can visit AnnualCreditReport.com. The Fair Credit Reporting Act requires the credit bureaus to give you free access to your credit reports from each of them via this website once every 12 months. There are also numerous websites that offer free access to your reports (and sometimes scores) online. Your current credit card issuers may provide you with a free FICO score, too.
Check your reports thoroughly for errors. Credit mistakes can lower your scores and may make it harder to qualify for new accounts. If you find mistakes, you can dispute them with the credit bureaus.
It’s also helpful to review your credit scores to see where you stand. Remember, a score you see online might not be the same score a lender reviews when you fill out an application.
Step 2: Determine If You Are Likely to Qualify
Once you know the condition of your credit and have a sense of your score, it’s time to take an honest look at the cards you’re likely to qualify for now.
Based on your credit score, you’ll be able to choose cards for people with:
- No Credit/Bad Credit
- Fair Credit
- Good Credit
- Excellent Credit
Here’s a general guideline of how lenders may classify you, based on your FICO score.
|What Your Credit Score Means|
No credit/bad credit
If you fall into the “bad credit” category, it's probably a waste of your time to apply for a low-rate card that requires good credit. Similarly, if you’re in the “excellent credit” group, why settle for a less attractive offer when something better may be available?
Of course, every lender is different and may review a different report and score type when reviewing your application. The credit score categories above aren’t set in stone either. Lenders have different approval criteria, and your credit score isn’t the only thing that matters when you apply for a new account. The only way to actually find out if you qualify is to apply.
Step 3: Decide Which Features Matter Most to You
Next, narrow down the types of credit cards available based on your score and decide which features will benefit you the most.
No Credit/Bad Credit
When your credit history is thin or damaged, your most important concern is likely finding a card to establish your credit. This can be tricky, as many lenders may be nervous about taking you on as a customer. Nevertheless, there are lenders that offer cards to people with limited or damaged credit.
You’ll likely have two primary options when it comes to a new credit card: secured or subprime.
- Secured credit cards require you to make a security deposit with the issuing bank equal to the credit limit on the account. These usually start at $200 but can go as high as $1,000.
- Subprime credit cards are sometimes secured, but they may also be available as unsecured accounts without a security deposit requirement. Subprime cards are sometimes also advertised as student credit cards, which are usually best if you’re establishing credit from scratch.
Both types of accounts may have higher interest rates, extra fees, and lower limits than cards available to people with better credit ratings. As you will need to build your credit up through using the card, make sure that the one you choose reports your payments to the three major credit bureaus. Not all of them do.
You could also look for a secured card that places your security deposit in an interest-earning CD. That will allow you to make a little money off the deposit. And try to find a secured card that will automatically increase your credit limit as a reward for fiscal responsibility. For example, the Capital One Secured Mastercard increases your limit if you make your first five monthly payments on time.
A fair credit status may give you more options to choose from in terms of a new card. Although you shouldn’t expect to qualify for top-of-the-line rewards cards just yet, you might be able to pick a card that lets you earn limited rewards (if you’re into that).
If a lower APR matters more to you, a rewards card probably isn’t your best bet. APR generally only matters if you don’t pay your credit card balance off each month.
With a good credit rating, you’re more likely to qualify for cards with attractive features and rewards, such as:
- Travel Rewards Cards. Are you a frequent traveler? A card that earns travel rewards on purchases might be a nice fit.
- Cash Back Cards. Do you have good credit but don’t travel often? A cash back card with no annual fee could be a more attractive option.
- Balance Transfer Cards. Do you have outstanding balances on other cards? If so, a low-rate balance transfer offer might save you money and possibly give your credit scores a boost.
- Low-APR Cards. Do you routinely carry a balance from month to month? A card with a low APR could save you money in interest fees.
When you have good credit, the best card for you is the one with features that fit your lifestyle best. Focus your research on finding the card that can give you the highest rewards based on how you spend your money.
It takes hard work to earn excellent credit. One of the payoffs for your effort is the fact that many lenders will want you as a customer.
Being wanted is nice. In terms of credit card offers, it means that you’re more likely to qualify for the most attractive rewards, sign-up bonuses, and interest rates that card issuers have to offer. You can even get credit cards with a promotional 0% interest rate for a set amount of time. These are useful if you have a debt you need to pay off in installments, but make sure you can do it in the time allotted, or that 0% rate will likely jump to a very high one.
Picking the card with the perks you like best can be fun, but don’t forget to read the fine print to see what those benefits will cost you.
The Fine Print
Consider the following before committing to a new account:
- Annual Percentage Rate (APR). The APR on your credit card might not matter as much as you think, unless you have a history of carrying a credit card balance. If you discipline yourself to pay off your balance each month, you typically won’t be charged any interest on the account. This makes the APR on your card far less significant.
- Annual Fees. Even with excellent credit, certain cards (such as premium rewards cards) commonly feature annual fees. Determine whether the rewards and benefits from an account (including any sign-up bonuses) will outweigh the annual fee you’re charged. If they will, paying an annual fee might be worth the added expense.
Step 4: Apply
You’ve checked your credit, you’ve narrowed down the cards you’re likely to qualify for, and you’ve chosen the features that matter most to you. It’s time to apply for the card that made it to the top of your list and see if you’re approved.
Remember that thanks to a 2013 amendment to the Credit Card Act of 2009, people 21 and older can list all income to which “they have a reasonable expectation of access.” That lets you list income from other members of your household, including your spouse, and non-wage income such as distributions from a trust fund, unemployment compensation, and more. However, do be careful not to artificially inflate your income.
If you don’t qualify, don’t lose hope. You can call the card issuer and ask it to reconsider or find ways to improve your credit and try again in the future.
One More Thing: Manage Your Card Like a Pro
Qualifying for your ideal card is a great feeling, but your job isn’t done yet. Once you receive the card, you need to manage it properly, so that your account can work for you, not against you.
Credit cards can come with a lot of valuable benefits, not the least of which is their ability to help you build stronger credit. However, if you manage your account poorly by running up debt or, worse, paying late, that same card could hurt your credit instead of help it.