How to Choose a Credit Card
In this day and age, if you don’t have a credit card, then you are in a pretty small minority. Statistics by the American Banking Association show that 364 million credit card accounts existed at the end of 2017, which is more than the population of the United States. Of course, most Americans have more than one credit card—2.35 to be exact—meaning that about 189 million Americans currently hold at least one credit card.
However, more credit cards also mean more credit card debt, and this debt now totals over $1 trillion and makes up a quarter of all debt. Can you guess the average balance on each American’s credit card? $6,375; no insignificant sum.
Despite all of these considerations, however, there is no denying that credit cards are a huge convenience in our daily lives, and when it comes to things like online shopping, they’re a downright necessity. Deciding which one is right for you, though, can be a challenge, especially with so many options on the market. With that in mind, here is an easy 4-step process to choose the right credit card.
Step 1: Know Your Credit Score
Your credit score is major factor that goes into determining what kind of credit cards you are eligible for. Lower credit scores are likely to mean lower credit limits, outright rejection, or only being eligible for secured credit cards, which require the borrower to place a corresponding cash deposit with the issuing bank as collateral. If you discover you have a low credit score, your first step needs to be to try and rectify the situation. The good news is that a credit card can also help you build your credit score, but only if you handle it responsibly, so before you get your credit card, do some research and make sure that you understand exactly what the responsibilities and possible pitfalls are. Most importantly, understand how risky it is to simply pay the minimum required amount every month—you want to stay on top of exactly how much you owe at all times, and whenever possible, pay credit card debt off completely.
Step 2: Narrow Down the Type of Credit Card You Want
In general, we can divide credit cards into three different types based on how they can help you. These are credit-building or credit-improving cards for your credit score, interest-saving cards, and rewards-based cards. Which type is best for you will depend on your individual financial situation and personal priorities.
For instance, the first type of card includes secured credit cards, which are great for establishing a credit history and building or rebuilding a credit score. Frequent travelers might prefer rewards-based cards. And those looking to save on interest costs may specifically be looking for those with 0% balance transfers and lower annual percentage rates (APRs).
Our Choice Mastercard is a good example of a card that offers a low credit rate, no balance transfer fee, and no annual fees. Our Rewards Card allows you to earn points on all purchases, while our Cash Rewards Mastercard allows you to earn 1.5% cash back on your purchases. Our World Mastercard allows travelers to earn extra points on hotels, airlines, and restaurants.
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Step 3: Understand Your Own Spending and Payment Habits
It is important to be realistic about your own money habits. If you know that having a credit card with a high credit limit will only encourage indiscriminate spending, then you should opt for a lower limit, even if you do qualify for a higher one. Likewise, if paying off your full credit balance every month is not something you think you can realistically do, then the type of card you choose should vary accordingly.
It’s crucial to have a very clear idea of your monthly spending habits. Create a budget to see where your money is going, and figure out how a credit card will figure into your larger financial situation. Look at what you’ll be using your card for most, and consider the features and rewards that make the most sense in your particular circumstance. Where will the rewards make the biggest impact on your monthly budget? For instance, if you know that you’ll be able to pay off your credit card debt at the end of every month, then a low credit rate isn’t that important, and a rewards card makes more sense. But if you know that you won’t be able to pay off your card that regularly, a low credit rate is much more important.
Step 4: Read the Fine Print–Especially on Fees and Penalties
Many fees and charges can be hidden in the fine print. These can be things like transaction fees, fees for balance transfers, or even asking for credit limit increases. While seemingly minor, these can all add up over time. Make sure you go in with your eyes open, and always read the fine print. When in doubt, ask a bank officer directly about any hidden fees or charges you should know about.
Another thing to look out for is introductory low or zero interest rates that spike once the initial period is over. This applies to rewards-based cards as well. All reward and cash-back programs come with their own restrictions listed in the terms and conditions, so make sure you read those carefully.
Here at Citadel, we have a variety of credit card options, from low interest cards to cash-back and rewards cards to best suit your needs. If you still need guidance, we invite you to visit any of our branches to speak with one of our helpful credit card officers.