The promise of earning valuable benefits with a credit card can be exciting. But choosing the best credit card to add to your wallet isn’t always as easy as it seems.
There are many factors to consider before completing an actual application. At the very least, you should consider your spending habits, the types of rewards you value most, and the type of credit card you’re likely to qualify for at the time.
Here you will find everything you need to know about choosing a credit card.
Check your credit report
Step one in choosing the right credit card is checking your credit report from one of these three major credit bureaus: Equifax, TransUnion or Experian. When you apply for a credit card, the state of your credit has a significant impact on whether or not you are approved. You can view all three credit reports once a week for free at AnnualCreditReport.com.
Be sure to review each report in detail. Understand how your credit is developing – good, bad or otherwise. It is also wise to check for errors and report them. Credit errors do happen and can unfairly lower your credit scores. If you discover any errors, you can dispute them with the credit bureaus. The Consumer Financial Protection Bureau offers sample dispute letters that can help.
You can also check your credit scores, although the scores you find online will likely differ from the scores your lender sees. Credit card issuers have different minimum credit score requirements for different cards. So if your credit score currently falls within the “fair” range, it’s probably not wise to apply for a premium rewards card that requires excellent or good credit to qualify.
Related: 6 things you can do to improve your credit score
Understand your spending habits
Next, you need to look back and examine your spending habits. Do you spend a lot of money every month on groceries to feed a large family? Do you order takeaway meals or do you often eat out?
With the right credit card strategy, you may be able to increase your rewards potential across different spending categories. For example, there are credit cards that offer extra rewards when you spend on certain categories:
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When you choose a credit card that offers higher rewards for frequent purchases, you can earn more points, miles, or cash back (depending on the card type).
As an example, let’s look at dining and imagine you spend an average of $1,000 per month on dining purchases. You can earn up to $20 per month (or $240 per year) with a 2% cash back card like the Citi® dual cash card (1% upon purchase, plus 1% upon payment; see rates and fees).
Now suppose you place the same $1,000 in monthly dining purchases on the website Chase Sapphire Reserve®. You’ll earn 3 points per dollar spent, for a total of 3,000 Ultimate Rewards points per month (or 36,000 per year). Based on our Chase points valuation of 2.05 cents per point, those 36,000 Ultimate Rewards points could be worth up to $738 in rewards – that’s a lot more bang for your buck.
Related: These are the best credit cards for everyday spending
Research the different card types available
Once you know your credit score and have identified your heavy spending categories, you can start sifting through credit card offers. From here, you need to figure out which credit card features are the most attractive and how you plan to redeem your points.
For example, if you have a specific trip in mind and you know which airline you want to use, you may want to purchase a cobranded airline card or opt for a card that offers flexibility with transfer partners, such as the Chase Sapphire Preferred® Card.
Here are some common types of credit cards to consider:
Cobranded airline and hotel credit cards
Cobranded airline and hotel credit cards are ideal for people who are loyal to a specific program, but not enough to earn elite status. These cards offer benefits that can make your travels a little more comfortable.
With airline cards, you can expect free checked bags, discounts on inflight purchases, and possibly even advancement toward elite status. On the other hand, hotel credit cards usually offer mid-range status, resulting in perks like room upgrades, free breakfast and bonus points on paid stays.
Bank reward cards
Bank rewards cards offer the ultimate in redemption flexibility as they provide transferable currency points. These cards often offer generous bonuses in everyday spending categories.
When redeeming points, you can choose to get cash back or transfer points to airline and hotel transfers, making these rewards extremely versatile. If you opt for a premium bank rewards card, you can even enjoy valuable benefits like airport lounge access and annual travel credits.
Some of our favorite bank rewards cards are the Chase Sapphire is preferredCiti Premier® Card (see rates and fees) and the American Express® Gold Card.
Credit cards with cashback
Cash back credit cards may be suitable for people who prefer to keep things simple when it comes to credit card rewards. There are no rewards programs to keep track of, and you never have to worry about a card issuer devaluing your rewards. Plus, with cash rewards, you can spend your earnings on anything you want.
Cashback cards like the Blue Cash Preferred® Card from American Express are great if you want to maximize everyday spending categories like US gas stations, US supermarkets and certain US streaming services.
The Citi® dual cash card (see rates and fees) is a unique option to earn cash back rewards that also has the potential for high-value redemptions when paired with a more expensive card.
Credit cards without annual fees
No annual fee credit cards may be suitable for people who prefer to minimize their out-of-pocket expenses when earning rewards.
The Chase Freedom Flex is a good example of a high-quality card with no annual fees. The card offers rotating 5% cashback categories to help you maximize your earnings. You can earn 5% cash back in rotating quarterly categories on the first $1,500 in purchases per quarter you activate. The best part is that if you also have the Chase Sapphire is preferred or Chase Sapphire Reserveyou can transfer these points to Chase’s travel partners.
Related: How to Maximize Your Chase Ultimate Rewards Points
Learn the basics for credit cards
As you search for the credit card that meets all your needs, it helps to understand the basic credit card terms you’ll encounter during your search. Knowing these terms will help you compare offers from multiple card issuers and choose your favorite.
- April: This stands for annual percentage rate: the interest that a card issuer charges and that you have specified as the annual rate. A card’s APR may be less important than you think as you have no outstanding balance. With most credit cards, you won’t owe any interest if you pay the full balance by the due date.
- Cost: Credit card fees are additional costs associated with certain credit cards. Common fees to look out for include annual fees, late payment fees, balance transfer fees, and foreign transaction fees, to name a few. Credit card fees aren’t necessarily a deal killer, but you should understand what you’re agreeing to before applying for a new account.
- Minimum payments: A minimum payment is the lowest amount you can pay to your card issuer each month. If you don’t pay the minimum payment, you may be charged a late fee, which will damage your credit score.
- Advantages: In addition to rewards, some credit cards also offer other benefits that can be extremely valuable. Airline credits, TSA PreCheck and Global Entry credits, airport lounge access, and rental car coverage are just a few examples. Registration is required for certain benefits.
- Rewards: Credit card rewards are usually tied to how much you spend on the account. Rewards can be in the form of points, miles, or cash back that you can earn and redeem.
- Welcome bonus: A credit card welcome or sign-up bonus is an offer some card issuers make to attract new customers. Typically, you’ll need to spend a minimum spending requirement within a few months of opening your new account to qualify. For example, this could look like “Spend $2,000 or more in the first three months after opening an account.” If you meet the spending requirement, you will receive a certain number of points, miles or cash back.
Related: TPG’s Beginner’s Guide to Credit Cards: Everything You Need to Know
Review credit application requirements
We’ve already discussed how good credit is essential if you want to qualify for a new credit card. Let’s say you want to maximize your chances of getting approved for a credit card. In that case, you should be aware of other factors that card issuers may take into account, such as household income and outstanding debts.
It can also help to review the credit card application restrictions of different card issuers to see if any of them are holding you back. For example, American Express limits welcome offers to once per lifetime and limits welcome bonuses if you try to open more than one card within the same family, while Chase generally won’t approve you for a new card if you’ve applied for five or more cards. in the past 24 months.
Because of these types of rules, you’ll want to apply for the highest Amex card bonus possible and keep track of your credit applications before applying for a Chase card.
Related: Want to open a new Chase card? This is how you calculate your 5/24 status
In short
Ultimately, choosing a credit card comes down to a decision based on your personal needs. You should consider a card that offers the most rewards in your largest spending categories and will help you achieve your future travel goals.
Before applying for a credit card, we strongly recommend that you find out what your credit score is and be aware of any card issuer restrictions that may affect your ability to get approved or earn a welcome bonus. If you qualify and use your new credit card responsibly, it has the potential to be a great tool that can help you build credit while earning attractive rewards as a bonus.
Additional reporting by Emily Thompson, Stella Shon and Ariana Arghandewal.
For Citi Double Cash rates and fees, click here.
For Citi Premier rates and reimbursements, click here.