Having great credit brings many financial perks, including the ability to get credit cards with the lowest rates, highest limits, and best rewards. There are different types of credit cards and it’s important to know which one will best suit your needs. Credit cards have their advantages for disciplined spenders, and most consumers with good to excellent credit scores already know how to pay their bills.
If you aren’t a disciplined spender, then a credit card might not be the best choice for you. But if you’re looking to build your credit, finance a new purchase, or earn rewards for the purchases you normally make, consider the following tips from Grant Botma and his team at Stewardship.
How to Choose a Credit Card
Before choosing the best credit card for you, you first need to know what range your credit score falls into. You can order your credit report once a year for free on the Annual Credit Report website. Credit scores fall into five ranges: poor, fair, good, very good, and excellent. Once you know what range your credit score is in, you can then begin to look for a credit card.
Your credit score is not the only factor, though. Credit card companies will also consider your monthly income and possibly other factors, such as your housing payments, to paint a picture of your monthly debt-to-income ratio, which helps determine how likely you are to pay your credit card bills.
“If you aren’t a disciplined spender, then a credit card may not be right for you. Interest rates can accumulate fast and are incredibly difficult to get out from underneath. Once you start growing debt, it’s a snowball effect, and you will find yourself in trouble,” says Grant Botma, a financial advisor with Stewardship.
He adds, “A lot of consumers may think of credit cards as a negative thing, but credit cards aren't evil. It's the person behind the spending that will determine if a credit card is right for you.”
He recommends looking at two additional options when choosing a credit card.
Botma finds that ease of use when choosing a credit card is best. He suggests this simple two-step process:
1.) Find a credit card through your bank or credit union. This will ensure that you can transfer payments directly from your checking account.
2.) Some credit cards charge interest daily and not monthly. It would be best to choose a credit card that charges monthly, so you avoid paying more.
How to Choose a Credit Card That Suits Your Needs
There are three main types of credit cards: rewards cards, zero-interest cards, and cards for building credit. Each of these has its own advantages for consumers with different needs.
Being able to earn rewards on your everyday spending is one perk of having great credit. Assuming you have no debt and good, very good, or excellent credit, a rewards card is an excellent option. Common rewards can offset the cost of purchases by providing a percentage cash back, points, or miles that can be redeemed on statements, hotels, or airfare. A rewards credit card can help you earn cash back and other perks with your everyday purchases.
The most common rewards are cash back and travel points for airfare and hotel accommodations. Depending on the rewards card you choose, you may receive other perks as well. Consider what rewards would fit your lifestyle best, and shop around for the best rates and rewards combination before choosing. Compare your options and choose the best deal for you.
Promotional 0% APR:
For people with good, very good, or excellent credit, some credit card companies offer an introductory, promotional 0% APR for a certain period, such as 12 months. If you’re looking to finance a new purchase or get out of debt, these can be a good choice.
Often the 0% APR is good for both new purchases and balance transfers. During the interest-free promotional period, you save money by making payments that go fully towards your balance rather than toward interest charges.
Balance transfers often require a fee, so you’ll need to consider whether the savings outweigh the fee. Occasionally you can find a balance transfer offer without a fee. If you have debt or are looking to make a new purchase, consider a 0% interest card if you can plan to pay off the debt before the promotional period ends.
If you don’t have much credit history or if your credit score is poor or fair, you should prioritize building your credit over special offers or rewards. A good credit score is the most important factor in getting the lowest interest rates, highest limits, and best rewards.
Special credit cards exist that are designed especially for people to build up their credit and improve their credit scores. Often these cards have lower limits, higher rates, and possibly security deposit requirements. They are a good choice for people who don’t have credit or have poor credit.
Credit cards usually come with some type of purchase protection, which gives you protection from having to pay for fraudulent charges. It’s normally automatically included, so you don’t have to do anything extra other than find a card that has fraud protection included.
You can use your fraud-protected credit card when buying online or when traveling, because those are the most common situations in which your credit card number is stolen and you’ll have fraudulent activity on your account.
|How to choose and use your credit card for protection:|
|Use a credit card when buying online: Purchasing items online can be scary if you are unsure of the supplier. Using a credit card to make your next online purchase will use the credit card company's money, not your own. The credit card company has insurance on their money and will file a claim to protect it.|
|Use a credit card when traveling: The most fraudulent activity occurs when you are out of your comfort zone. Traveling is a scammers wheelhouse. Use a credit card when going out of town to protect your own money and use the credit card company's insurance if fraud occurs.|
|Use a credit card that has your reward of choice: For instance, if you are a heavy traveler, then you may want a credit card that has frequent flyer miles. Or you could go with a credit card that offers hotel points. Some credit cards will have a shopping mall of goodies to purchase using the accumulated rewards. The choice is really up to you, but make sure it fits your lifestyle.|
What Else Should You Consider When Choosing a Credit Card with Great Credit?
Once you decide what type of credit card suits you best, you should shop around for the best offers from different credit card companies. Other factors to consider when choosing a credit card include annual fees and interest rates that come with it. Consider any annual fees, foreign transaction fees, late payment fees, and APR.
Some credit cards charge interest daily and not monthly. It would be best to choose a credit card that only charges monthly to avoid paying more. Consider getting a credit card directly from your bank or credit union to ensure you can transfer payments directly from your checking account.
If you’re not sure which card to choose, try submitting prequalification forms online for multiple credit cards to see for which ones you qualify for. There’s no damage to your credit score for a prequalification application because it's considered a soft pull of your credit. Keep in mind that prequalification does not guarantee that a full application will be approved.
The hardest part of owning a credit card is resisting the temptation to overspend. Not paying your credit balance off after each statement period significantly increases your likelihood of going into debt. Focus on building wealth instead of what you can get out of a credit card.
As Botma says, “The very last thing you want to do is get a credit card for the rewards and get yourself into a ton of debt. Make sure the credit card fits your lifestyle and is only used to purchase the right things within your budget.”
TrustedChoice.com Article | Reviewed by Grant Botma
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