Figuring out how to choose a credit card may seem like a daunting task, but all you need to do is follow these five simple steps.
1. Check Your Credit Score
This step alone helps you narrow your choices. If you have fair credit, don’t apply for cards that require very good credit. Aside from the likelihood that your application will be turned down, you’ll have a hard inquiry on your credit report but no new credit card to show for it.
Each time you apply for credit, the lender does a hard inquiry to review your credit report. A hard inquiry can take from zero to five points off your credit score. Knowing your score helps you stay away from cards you’re unlikely to get approved for, and it protects your score.
Here are the FICO credit score ranges:
- Exceptional: 800 and above.
- Very good: 740-799.
- Good: 670-739.
- Fair: 580-669.
- Poor: 579 and lower.
2. Decide the Type of Card You Need
This is easier than it sounds. If you’re thinking about a rewards credit card, take a look at your budget and highlight your biggest expenses. Do you have a credit card that offers rewards in those areas? If not, focus on cards with rewards categories that cover those expenses.
What if you don’t have a budget? Well, now’s the time to create it. I don’t recommend getting a credit card without having a budget and a way to track spending in place. You can easily fall into credit card debt if you don’t have structure that prevents you from overspending.
To help you decide on the type of credit card, ask yourself these questions:
- Do I need a rewards card or some other type of card, such as a low-interest credit card, a card for rebuilding or establishing credit, or a balance transfer card?
- What are my biggest expenses?
- What credit cards do I currently have?
Here’s a brief rundown of a few of the different types of credit cards:
- Student credit cards. If you’re a student, these cards can help you build credit before you graduate.
- Balance transfer cards. These cards often have 0% introductory annual percentage rates, which allow you to get rid of credit card debt. You can transfer your debt from other cards and pay it off without incurring interest during the intro period.
- Rewards credit cards. These cards offer cash back, miles or points. Some have multiple categories, such as 3% on groceries or 5% on rotating quarterly categories. And some offer a set percentage on all purchases, such as 2%.
- Secured credit cards. If you’re establishing or rebuilding credit, a secured card can be a good choice. You do have to make a deposit, but these cards will help you increase your credit score if used responsibly.
- Cash back cards. These cards offer cash back rewards on everyday expenses and come in a variety of formats. For example, some offer rewards on all purchases, but others might have rewards in specific categories. And some cash back cards might have generous rewards in a category but cap rewards at certain amounts.
- General travel rewards. These credit cards offer travel rewards, good perks and benefits, and flexibility to choose an airline.
- Airline-branded cards. With an airline card, you earn rewards when using your card for purchases with a specific airline. This can be a good choice if you have a favorite airline.
- 0% APR credit cards. These cards have 0% introductory APRs on purchases and/or on balance transfers. These are ideal if you need to make a large purchase and want to pay it off over time without paying interest.
These are just some of the most popular categories, so take time to research and see what’s out there. For instance, there are categories based on your credit score, such as credit cards for bad credit, fair credit, good credit and excellent credit.
Once you have decided on the type of credit card, start comparing credit cards in that category. To make it quick and easy, check out U.S. News’ Credit Card Comparison tool.
3. Compare Credit Cards
OK, you’re ready to select credit cards to compare. If you’re targeting a rewards card, pinpoint the category of rewards you need. Remember looking at your budget to determine your biggest expenses? Focus on comparing cards that cover a type of expense that you aren’t currently earning rewards on.
Once you’ve settled on a few cards to compare, decide what features are most important. The questions you need to answer will vary depending on the type of card, but you can use this list as a guideline:
- What is the purchase APR, and is there a 0% introductory purchase APR?
- What is the balance transfer APR, and is there a 0% introductory APR?
- How many months does the 0% APR on a balance transfer card last?
- What is the balance transfer fee?
- Is there an annual fee? Do the rewards make the fee worth it?
- What is the cash advance APR and the transaction fee?
- Are there foreign transaction fees?
- Do the rewards match my spending patterns?
- Is there a welcome offer?
- What are the perks and benefits, such as waived baggage fees?
- Are there any other fees or terms that raise a red flag?
4. Which Credit Card Should I Get?
By this point, you’ve narrowed your choices and have an idea of which credit card matches your needs the most. What if it’s a tie?
If more than one card meets your criteria, consider choosing the one with the lowest APR. Hopefully, you won’t carry a balance, because that can lead to debt. However, life is unpredictable, and you could have a financial emergency, such as a job loss or a big medical expense.
So, with other things being equal, consider the card with the lowest APR, just in case you ever need to float a balance for a few months.
5. Apply for a Credit Card
You did it! You survived the process, and you’re ready to apply for your chosen credit card. Most issuers allow you to apply either online or over the phone.
Before you start the application, have a few things handy: your Social Security number, employment information and your gross annual income. Applications differ by issuer, so you may also be asked to provide other personal information.
Once you’re approved, note the date. If there’s a welcome offer and you’re required to spend a certain amount within three months or so, be sure you meet the requirements within the deadline. But remember it’s better to miss the deadline if it requires buying items you don’t need.
And if you’ve gotten approved for a balance transfer card, know the terms. Some issuers require the transfer to take place within a set time period starting with your approval date.