Your guide to choosing the right credit card
By Dawn Papandrea
March 23, 2016
If you’re in the market for a new credit card, you’ll find there are cards to match nearly every spending style and financial situation — yes, even for those of you who don’t have great credit or are just starting out.
So how to make sense of the whole array of cards out there?
Click on the icons above and below to explore the pluses and minuses of various cards.
To figure out what type of card best suits your needs, start by assessing how you pay your bills and what you’re looking for in a card. If you have great credit and pay your balances every month, a travel rewards card is smart. If you are facing a big purchase, a 0 percent interest card might be right for you. If you’re looking to reduce the APR on a current card with a high balance, then you may want to look at balance transfer cards with a low interest rate for a set period. If you carry a balance, a low interest card may be your wisest choice.
Still not sure what kind of card best suits your needs? We put together the following guide to look at the different card options, along with their perks and potential pitfalls.
Gas credit cards usually offer a small discount per gallon of gas charged on the card. Some are co-branded with a gas station company, such as Exxon or Citgo and a major card network, such as Visa or MasterCard, and can be used anywhere.
Wallet-worthy for: People who don’t have stellar credit. Gas cards generally don’t offer great savings, but getting approved for one is easier than for most other types of traditional cards. As such, gas cards typically come with much higher interest rates to reflect the bigger credit risk on the part of the issuer.
Card clue: Gas cards also have lower credit limits to prevent you from carrying a big balance. Ideally, gas cards can help you build your credit score and save a few dollars in the process. However, don’t roll over balances from month to month or you’ll end up paying big in interest fees.
How to choose one: It makes the most sense to get a card for the gas brand that more often than not offers the lowest price in your area. Otherwise, any savings you’ll rack up would be moot because you’re paying more per gallon for the actual gas.
Prepaid cards are designed for people to enjoy the convenience of plastic so they don’t have to carry cash — and there is no extension of credit involved. You can usually reload these cards by adding money from your checking or savings account. Once you use up what’s in the account, that’s it until you reload it. There’s no risk of getting into debt.
Wallet-worthy for: Because there are no age restrictions on prepaid cards, it makes them ideal for minors as a baby step toward learning how to spend within a budget using plastic.
Card clue: Prepaid debit card activity is not reported to the credit bureaus, so while prepaid cards are a convenient tool and a good way for young people to practice with plastic, they won’t actually help you build credit. (Extra: Prepaid vs. secured cards)
Secured cards work like a loan. You have to put up money as a security deposit and from that point, the card functions like a traditional credit card. The main difference is that the lender is holding on to your security deposit for as long as the account remains open, and the amount you deposited will typically match your credit limit. Therefore, if you deposit $500 on the card, you’ll have a $500 credit limit.
Wallet-worthy for: People who are trying to rebuild their credit, or those who are just getting started building a credit history. Because you’re essentially borrowing your own money, it allows card issuers to take a risk on you even if you don’t have a solid credit track record. The issuers make their money by charging you interest on any balances you don’t pay off by the due date. You need to use these cards wisely if you want to graduate to unsecured credit cards at some point. If the secured card is used responsibly, over time, you’ll begin to see an uptick in your credit score. It could take a year or more, though, to make significant progress on your credit score if you have to overcome other negative credit file information. Once your FICO score reaches a good/fair range (approaching 700), you might be ready to transition to an unsecured card.
Card clue: Not everyone can qualify for a secured card, however. For instance, if you’ve just filed bankruptcy, you may not qualify. Some secured cards are marketed for those who are just starting out, rather than for those with severely blemished credit.
How to choose one: A top priority is to make sure the card you choose reports to each of the three major credit bureaus — Experian, Equifax and TransUnion. After all, that’s the whole point — to start making headway toward a stronger credit file. Also, try to avoid a secured card that charges an application fee, because lots of them do. Finally, make sure there are not too many additional fees tacked on, and inquire about the process for getting your deposit back since that may vary.
You’ve probably heard stories of people earning miles and points and getting free air travel and hotel stays just from using their credit cards. If you think a travel rewards card is right for you, there are a few key things you should know about airline cards and hotel cards. First and foremost, the cards with the most generous rewards programs usually require that the cardholder have a high credit score. And second, if you’re not used to paying your balances back in full each month, you won’t reap the full benefits of “free” rewards as whatever interest you pay on carried-over balances cancels out the free rewards. To take full advantage of a rewards card, you have to pay the full balance on the card every month.
Wallet-worthy for: Frequent fliers who have good credit really stand to benefit most from adding an airline card. There are lots of different programs — some geared toward international travelers, some for domestic fliers, and some for those who travel only a couple of times per year.
Card clue: Travel card rewards programs are all different, so be prepared to do some research. Most rewards have expiration dates, for instance. Also, travel reward cards generally charge higher APRs and, in many cases, an annual fee, so consider if your benefits will outweigh the additional costs involved.
How to choose one: If you’re loyal to one airline, you can really cash in on perks by getting an airline-branded rewards card. If you’re boarding flights every month or every week, you can find a lot of value in an elite card with a higher annual fee. However, if you tend to travel less and want more flexibility in choosing airlines and flight times, a rewards card that lets you redeem your points from among multiple airlines will make more sense for you. Once you assess your own flying habits, compare the introductory offers of various issuers. You can get a lot of points quickly via a sign-on bonus, but it usually requires a spending a minimum amount within a certain number of months.
Student credit cards often provide young adults with their first access to credit. The main difference between student and regular cards is that there is an understanding that the student won’t have much of an earning income at all, and their credit scores will be none or limited. Someone with a nonexistent credit history and little income would normally not qualify for a traditional credit card, but being a student can be a ticket in the door.
Wallet-worthy for: Students — isn’t that obvious? All kidding aside, you will have to prove your college student status in order to qualify. More important, make sure you’re ready to wield the power of credit and aren’t just using it to upgrade your frugal student lifestyle. If you start off with bad credit habits, you’ll be setting yourself up for a lifetime of battling debt.
Card clue: Student cards will start off with lower credit limits. Some card issuers offer their student customers incentives for using their cards responsibly. For instance, you might get a cash bonus if you pay your bill on time. Discover it offers students $20 cash back for good grades. Other student cards may offer a free FICO score with your monthly statement to help you monitor your credit score.
How to choose one: Student credit cards tend to come in one of two forms. One is a card that’s just like its regular version, only with a lower credit limit. The other is specifically designed to encourage good credit behavior, offering rewards and benefits relevant to a student. Most major banks have a student card program.
The savviest plastic users will tell you that not only are they living a debt-free lifestyle and have great credit scores, but they’re making a profit by using their credit cards strategically. Cash-back rewards cards make that possible offering everything from cash back, to gift cards, to merchandise. According to the J.D. Power 2015 U.S. Credit Card Satisfaction Study, about 52 percent of consumers who switched cards did so because of rewards cards. Before you go that route, you should learn a thing or two about how to get the most bang for your rewards card swipe.
Wallet-worthy for: Anyone who consistently pays his or her card balances in full each month should consider adding a rewards card. If you carry a balance, don’t bother — the interest you’ll pay will negate any rewards you earn.
Card clue: It’s important to read the fine print when it comes to factors like how long it takes rewards to post after a purchase, expiration dates, redemption choices, etc. Do your research so you avoid surprises — such as losing your points or not getting the maximum value out of your rewards.
How to choose one: Most of the major credit issuers have general rewards cards that let you earn points for everyday purchases such as groceries, gas and travel. However, you should think about your spending style, and the types of rewards that most interest you before you apply for any card.
It’s likely that every time you shop, a cashier asks if you’d like to apply for the store credit card to save money on the purchase, usually something like 10 percent off. Before you say yes to the one-time discount, you should know what you’re signing up for.
Wallet-worthy for: Loyal shoppers who don’t necessarily have top-notch credit. These cards usually come with a low credit limit and a high interest rate. In that respect, opening a store card or two is a good way to build credit. But don’t just say yes to every clerk who offers a store card. Think about how often you shop at that particular retailer (and if you plan to be a customer for the foreseeable future), and if the benefits — such as promotions, discounts and other savings exclusively for cardholders — make it worth applying. Also consider whether you can you use the card elsewhere (if it’s co-branded between the retailer and either Visa or MasterCard, you probably can), or whether it’s only for that store (such as a Kohl’s or Macy’s card).
Card clue: A wallet full of retail cards might be nothing more than a temptation for some consumers to spend beyond their means. Before you sign up for a new store card — especially one that is designed to encourage you to buy more from a particular retailer — ask yourself if you can control your spending.
How to choose one: Try not to apply when you’re put on the spot in the store. If you think you are interested in a store card, do some research first to figure out if it’s a good fit for you, and wait until your next trip to sign up and score the discount.
With a track record of great credit responsibility comes the potential for great perks. While similar to some of the rewards cards mentioned above, elite cards (with monikers like platinum or preferred) come with super-sized benefits designed specifically for people with top-tier credit.
Wallet-worthy for: Consumers with FICO scores considered to be “very good” (in the 740-800 range) or “exceptional” (scores above 800) who also do a lot of credit card charging are doing themselves a disservice if they’re not cashing in on higher-level card benefits. If you use credit regularly, you could earn access to exclusive travel club access, concierge services, preferred event seating, and more.
Card clue: The big catch with these cards is that there is almost always a pricey annual fee ranging from $100 to $500, and even higher for a few super exclusive cards. Determining if these fees are worth it really depends on how you plan to use your card, and if the perks fit your lifestyle. For frequent travelers, these cards usually pay for themselves. However, if you rarely use plastic, or don’t get away all that often, the annual fee might not be worth it to you.
How to choose one: You’re not going to qualify for an elite card without stellar credit, so don’t bother applying otherwise. If you are a credit superstar who is happy with your current card, you could start by contacting your issuer to ask about switching to an elite product. However, it’s always smart to compare credit cards to find the one that best suits your spending style when considering opening a new account.
Choosing the right credit card can help you develop a strong credit score and provide some perks and benefits along the way — if you use them responsibly. To borrow a slogan from one popular creditor, “what’s in your wallet” really does matter.