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Long Format Blog - USA Fact
7 Tips for Choosing the Right Credit Card
Choosing the right credit card is like any important relationship.
Picking a card that fits your unique needs and goals is key to a successful marriage of credit and creditor. Before you can pick the right card for your needs you need to understand where you are in life and what your needs are.
No matter where you are in life and what your goals are, building credit is an essential life tool. Take a look at these 7 tips from USA Fact to help you navigate your credit options and find the perfect one to bring into your life!
Know Your Credit Score
Before you begin to look at what card you want, it is important to have an understanding of your creditworthiness so that you don’t waste your time looking at cards that are outside of your reach. The main three rating agencies are Equifax, TransUnion, and Experian and a general guide to your rating is as follows:
800-850: Excellent rating denoting low risk borrowers where you should have access to a wide variety of credit options
740-799: Very good rating where individuals have demonstrated a positive history of credit behavior and should have an easy time acquiring additional credit
670-739: Good credit rating where lenders typically view them as having an acceptable risk level for future borrowing.
580-669: Often considered subprime borrowers, you may expect to get denied for certain lines of credit or have higher rates of interest.
300-579: Individuals in this range often find it difficult to acquire new credit. If you fall in this range, expect to need to take steps to improve before being able to get a new card
Almost all credit cards that you are interested in will give you the credit range that they are looking for, so knowing your score and what it means is the first thing you need to know to start your credit card search.
Understand your Goals
Once you understand your credit score, you can better chart out your specific goals and the card that makes the most sense for working towards them. You can lump credit card types into three main cards with specific purposes:
Cards to Re-Build Credit: Student or secured credit cards can be great if your goal is to re-build credit. These cards are easier to acquire, but also tend to require deposits and have lower limits.
Cards that Save Money on Interest: Typically only an option if you have at least good credit, these cards are great if you are looking to transfer a balance and pay less interest or if you have irregular income and are likely to carry a balance from time to time.
Cards that Earn Rewards: Since these cards tend to have high interest rates, reward based cards are great for people that do not carry a balance regularly to maximize returns.
Since credit applications can negatively affect your credit score, knowing the types of cards and what you should look into is an important step in getting the right card to meet your needs.
Know the Effects of Credit Applications
If you are new to credit cards or starting off your credit journey, remember that applications should not be unlimited. If you open a new account or even apply for a new card, you can be putting your credit score at risk.
This is why it is vital to think through your card choice. If you are going for rewards, make sure you don’t just opt for the card with the best ones, but also, the ones that you are going to get the most benefit from.
Look into Infrequently Asked Questions
While the focus on what type of card you are looking for and what the benefits are is common, credit card companies are still in the business of making money. With that in mind, remember that important details are often hidden in the fine print that can cost you money. Some questions that are important to know are:
Will this Card Help me Build Credit? Particularly relevant for secured credit cards, some cards will not report to the credit bureaus which mostly defeats the purpose of having them.
How Long is the 0% APR period? If you are looking to transfer a balance and will carry it for a while, you may be able to find a card that does not do a 0% APR period, but carries a lower overall interest rate to save you money as you pay off debt.
How do I Spend my Rewards? Although many rewards cards boast of big rewards, it is important to know what you get the best points on and overall return. Make sure you know what reimbursement looks like before you sign up.
Prioritize Personal Value
Although the allure of high interest and high reward cards can be bright, make sure that you stick to the plan that will take you closer to achieving your personal finance goals. If you are looking to build credit, choose a card that offers a small limit, but has incentives for on-time payments like interest on deposits or increases in credit limit amounts to encourage good credit habits.
Looking to fix debt issues? Look into cards that have tools like payoff planners and don’t punish you for falling behind immediately. Having a card with strict rules can make repayment even more difficult for indebted borrowers.
If rewards are your priority, get a card that aligns with your interests. Also, be on the lookout for cards with lower required spending limits and rewards that never expire so you can maximize your benefits from your spending.
Know how to Include Income
Another important thing to keep in mind is that your credit limit is impacted by your income that you declare as well as your credit score. Thankfully, that income is not only limited to what you make from your job, but anything that hits your bottom line.
If you are a student, you can include things such as grants or student loans that you know you are receiving in the gross annual income area of the application.
If you are married or cohabitate, you can include your spouse or partner’s income in trying to improve your credit decision.
Use your Card the Way you Planned
Although choosing the right card is an important step, you still need to execute your plan with it. If debt reduction is your goal, be sure to not use additional credit and find yourself further from financial freedom.
If you’re building credit, make sure you pay on time every month and use your card as well. If you never use your card, you don’t get credit for payments.
No matter the card you choose, USA Fact hopes this guide is helpful in getting you to your financial goals and using credit responsibly.
