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- When it comes to picking the right credit card for you, tailor your choices to your spending habits.
- There’s much more to the perfect wallet than one optimized to earn the greatest possible rewards.
- Frequent travelers should also consider cards with benefits like travel insurance and elite status.
- Read Business Insider’s guide to the best credit cards.
Credit cards aren’t just a spending tool; they can be a smart financial strategy when used wisely. From managing cash flow to securing rewards, the right credit card can enhance your financial portfolio. But with countless options out there, how do you pick the perfect one for your wallet?
Understanding Your Needs
Before diving into the sea of credit card options, take a moment to reflect on your financial habits. Are you a frequent traveler, a student, or a business owner? Understanding your specific needs is the first step in finding a card that aligns with your lifestyle.
While it’s always best to pick the best credit card that offers rewards that fit your personal spending habits and travel goals, there are a few attributes that come in handy for reasons beyond just the return you’ll get for everyday purchases.Â
Types of Credit Cards
Credit cards come in various forms, each tailored to different financial needs and lifestyles:
Rewards Cards
Ideal for those who love perks. Whether it’s travel miles, cashback, or points, rewards cards turn your everyday spending into exciting benefits. Whether you’re earning more cash back at stores you love, or earning miles towards your next big trip, rewards credit cards are an appealing option. These cards are generally reserved for those with the best credit scores.Â
Balance Transfer Cards
Balance transfer cards are a lifeline for those looking to manage debt. By transferring existing debt to a card with a lower interest rate, you can save on interest and pay down your balance faster. The cards with the longest intro APR periods are often only good options for debt consolidation and generally do not offer rewards on ongoing spending.
Student Credit Cards
These are designed for young adults stepping into the financial world. Student credit cards often have lower limits and education-focused rewards, making them a smart start for building credit. Student cards often offer credit-building tools and credit-monitoring features to help students create good habits as they learn about their finances.Â
Business Credit Cards
Tailored for business owners, business credit cards not only manage business expenses but many also offer lucrative rewards that can benefit your business. You will need to have a business to qualify for a business credit card, but many side hustles are eligible for small business products.
Factors to Consider
Selecting a credit card isn’t just about the perks. Here are some critical factors you should consider:
Interest Rates
Understanding the interest rate, or APR, is crucial. It can significantly affect the cost of your purchases, especially if you tend to carry a balance.
Fees and Charges
From annual fees to late payment charges, being aware of the potential fees can help you avoid unnecessary costs.
It’s true that the credit cards with the best perks charge an annual fee, but there are bound to be annual fee-incurring credit cards that you become disenchanted with years after you open them. Perhaps your financial goals or your lifestyle changes. You don’t want to pay the annual fee forever, so you’ll have to either cancel it (which will immediately lower the length of your credit history and therefore ding your credit score) or downgrade it to a card with no annual fee.
Credit Limit
Your credit limit can impact your credit score and purchasing power. Ensure it aligns with your financial needs and spending habits.
Rewards and Incentives
While rewards are enticing, consider if the earning and redemption process aligns with your lifestyle and spending patterns.Â
If you’re looking for a great flexible rewards-earning credit card, keep in mind cards that offer travel perks that mesh with your travel style. For example, the $395-annual-fee Capital One Venture X Rewards Credit Card (rates and fees) comes with benefits like:
- $300 per year in credits toward Capital One Travel bookings
- Airport lounge access with Priority Pass Select (over 1,300 lounges worldwide), Plaza Premium (over 100 lounges worldwide), and Capital One Lounges
- 10,000-mile bonus each account anniversary (worth at least $100 toward travel)
- Global Entry or TSA PreCheck application fee credit
You can easily make up for the card’s annual fee if you travel with regularity. The Priority Pass Select access this card offers is alone worth over $400 per year.
Still, if you can’t organically get $395 worth from this card annually, go for a travel credit card that offers a smaller annual fee — or a no-annual-fee travel credit card, such as the Capital One VentureOne Rewards Credit Card.Â
Cash-Back Cards: A Solid Starter Option
Cash-back credit cards are immensely popular rewards cards as they’re extremely easy to earn and uncomplicated to redeem. A credit card that earns cash back effectively provides you with a rebate on every purchase.
Even if your primary credit card goals don’t involve earning cash back, it’s still wise to have one sheathed. For example, if your aim is free travel, you’d be wise to focus on the above-mentioned flexible travel rewards-accruing cards. But travel rewards can’t do everything. With a healthy stash of cash back, you can offset purchases like food and activities — even taxes and fees associated with award flights.
Collecting cash back in tandem with travel rewards makes your vacation as truly free as it can possibly be.
How to Apply for a Credit Card
Getting a new credit card involves more than just filling out an application. It’s about making an informed decision.
Checking Credit Score
Your credit score is a key factor in determining your eligibility. Knowing your score can guide you to the right card offers.
Research and Comparison
Don’t settle for the first offer. Compare cards based on fees, interest rates, rewards, and other features.
Application Process
Once you’ve chosen a card, ensure you understand the application process, from the documents required to the approval timeline.
Using Your Credit Card Wisely
Owning a credit card comes with responsibilities. Here are tips to ensure you’re using your card smartly:
Managing Credit Card Debt
Avoid the debt trap by paying off your balance in full each month, and keep an eye on your spending habits.
Maximizing Credit Card Rewards
Make the most of your card by understanding and utilizing the rewards program to its fullest potential.
Frequently Asked Questions
A credit card can have a significant impact on your credit score. When you use a credit card responsibly, it can help build your credit history and improve your score. Factors that impact your score include payment history, credit utilization ratio (how much credit you’re using compared to your limit), the length of your credit history, the types of credit you have, and the number of credit inquiries. Making payments on time and keeping your credit utilization low are key ways to positively influence your score.
Yes, you can have multiple credit cards, and it can be wise if managed properly. Having multiple cards allows you to maximize rewards, benefit from different card features, and potentially improve your credit score by having a larger total credit limit (which can reduce your credit utilization ratio). However, it’s important to manage them responsibly by keeping track of your spending, making payments on time, and not accumulating more debt than you can handle.
If your credit card is lost or stolen, report it to your credit card issuer immediately. Most companies have a 24/7 hotline for such incidents. Reporting promptly limits your liability for unauthorized charges. Your issuer will typically freeze or close the compromised account, investigate any fraudulent transactions, and issue a new card. It’s wise to monitor your credit report and accounts for any unusual activity following the loss or theft.
A balance transfer involves moving debt from one credit card to another, usually to take advantage of a lower interest rate on the new card. This can be beneficial if it helps you save on interest charges and pay down your debt more quickly. However, it’s important to be aware of any balance transfer fees, understand the terms of the new card (including how long the low interest rate lasts), and have a plan to pay off the balance before any promotional periods end to avoid higher interest rates later.
To maximize credit card rewards, choose a card that aligns with your spending habits (e.g., travel, dining, groceries). Understand your card’s reward structure and any bonus categories. Pay attention to any sign-up bonuses and their requirements. Use the card for everyday purchases to accumulate points, but make sure you’re able to pay off the balance each month to avoid interest charges. Lastly, keep an eye on any opportunities for additional points, such as shopping through your card’s online portal or taking advantage of limited-time offers.