Credit cards are all about you โ at least, they should be. With the variety of credit card options out there, you should apply for the ones that give you a little something, whether thatโs cash back, a little help paying down debt, or access to credit for the first time. Otherwise, itโs just a piece of plastic in your wallet.
Find Out Where You Stand
Whether youโre shopping for a car or a wedding dress, itโs a common piece of advice that you shouldnโt browse beyond your budget. Similarly, you shouldnโt look at credit cards that you canโt qualify for. The only way to figure out which cards are in your league is to get a look at your credit reports and credit scores: Thatโs part of how a credit card issuer decides whether to approve you.
Your credit card options relate to your credit history. If you have a great credit score, youโll probably have your pick of products, including those with the best rewards. Say your credit isnโt so hot โ you may not have as many options, so you want to know before you apply if the card is designed for an applicant like you. You can check your credit reports for free and see if thereโs any negative information on there, like late payments or high debt levels, and you can get a breakdown of your credit scores using the free Credit Report Card, which shows you two of your credit scores and can match you with credit cards youโre most likely to qualify for based on these scores. Keep in mind that the credit card issuers may use a different scoring model when reviewing your application.
What Are Your Options?
Once you have an idea of your credit standing, itโs time to prioritize the features youโd like from a credit card. Here are some options to consider.
No Annual Fee Credit Cards
Some credit cards charge you to be a cardholder. If youโre looking at a rewards card that also has an annual fee, make sure the rewards will outweigh the fee, otherwise it may not be worth it.
Low-APR Credit Cards
If you tend to carry a balance on your credit card, youโll want to minimize the interest youโll have to pay. Rewards cards and store cards often carry some of the highest interest rates, so donโt go for those if youโre not in the habit of paying in full. Compare APRs (annual percentage rates) before applying for cards, and know that certain behaviors, like paying bills late, could make your interest rates go up.
Secured Credit Cards
Using a secured credit card is sometimes the only option for consumers with poor credit who want to rebuild credit. It requires a deposit, which also serves as your credit limit. You put down the deposit, pay your bill each month (as you would with a regular card) and build your payment history that way. Many issuers will allow you to โupgradeโ to a regular credit card down the road if you pay on time and use the card responsibly.
Prepaid/Debit Cards
These cards provide the convenience of digital transactions and some fraud protections, like credit cards, but they donโt help you build credit. For people without bank accounts, prepaid cards make it easy to deposit paychecks and take cash out from ATMs, but with any financial product, make sure you understand the fees.
Balance Transfer Credit Cards
Say youโve racked up some credit card debt on a card that has a high interest rate and youโre committed to paying it down. If you can qualify for a balance transfer promotion that allows you to pay no interest for a specific time period, it may be worth the transfer fee (normally around 3% of the debt youโre transferring) to save money in the long run.
Rewards Credit Cards
Sometimes itโs points, other times itโs airline miles or cash back โ whatever the offer is, rewards cards incentivize spending. You can make money using a rewards card, if youโre responsible about it, but they can tempt you to spend more than you can afford. Keep in mind that rewards arenโt worth much (or anything) if youโre paying a ton in interest by carrying a balance.
The crucial step is to identify your priorities before applying for credit cards, because an application will result in a hard inquiry on your credit report. The occasional hard inquiry will have a minimal impact on your credit, but you donโt want to pick them up unnecessarily. You especially donโt want to have a lot of inquiries on your report in a short period of time, because it will hurt your credit score.
More on Credit Cards:
- The Credit.com Credit Card Learning Center
- How to Lower Your Credit Card Interest Rates
- 6 Smart Credit Card Strategies
- How Secured Cards Can Help Build Credit
- Tips for Paying Off Credit Card Debt
- How to Get a Credit Card With Bad Credit
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