Choosing the Best Credit Card
When you use your credit card, you are tapping a line of credit your bank has given you and taking out a short-term loan. The amount is subtracted from your line of credit. When you pay your statement each month, you are paying back the money you borrowed and your line of credit grows again.
If you pay your balance in full when your statement is due, your bank won't charge you interest. If you don't, however, your bank will start charging you interest and your credit line will stay lower. Read more details about how credit cards work.
If you pay your balance in full when your statement is due, your bank won't charge you interest. If you don't, however, your bank will start charging you interest and your credit line will stay lower. Read more details about how credit cards work.
The sheer amount of possibilities might feel overwhelming, but there are a variety of different card categories, all with different purposes.
Student credit cards: This type of card can be a good choice for a first credit card. But to qualify, you must be enrolled in a college or a graduate school. Many offer benefits such as cash back, rewards for good grades and free credit scores. According to the Credit CARD Act of 2009, cardholders must be at least 21 years old or be able to show adequate proof of income.
Credit cards for bad credit: If you have a FICO score below 580, you are considered very risky by credit card companies. People with FICO scores below 580 typically do not qualify for traditional credit cards. However, there are unsecured credit cards for bad credit that you might qualify for. Read the fine print carefully so you understand what fees, such as annual fees or application fees, come with these cards.
Secured credit cards: These cards are a good way to establish – or rebuild – your credit. Secured cards require a cash deposit, which is usually between $200 to $500. Your deposit decreases the risk for the lender. You receive a credit card to make purchases, so you’re actually buying items on credit. When you close your account, you get your deposit back, unless you have an unpaid balance.
Balance transfer cards: If you have credit card debt but still have a good credit score, getting a balance transfer credit card can help you save money on interest. The best cards offer a 0% introductory APR for a specified period of time, ranging from 12 to 18 months or so. Balance transfer credit cards often charge a transfer fee, which is usually between 3% to 5% of the total balance transferred.
Rewards credit cards: These credit cards earn points or miles that can be redeemed for a variety of rewards, including cash back, travel and merchandise. They offer flexibility with multiple redemption options and some offer additional points in bonus spending categories such as gas, grocery stores or travel.
Cash back credit cards: If you want to save on everyday expenses, these cards offer cash back rewards on a range of categories. You’ll often get a different rewards rate with each category. For example, you might get 3% cash back on grocery purchases, 2% on gas and 1% on all other types of spending.
Travel rewards credit cards: There are different types of credit cards within this category. For example, there are general travel rewards cards with flexible options, airline-branded cards and hotel-branded credit cards.
Student credit cards: This type of card can be a good choice for a first credit card. But to qualify, you must be enrolled in a college or a graduate school. Many offer benefits such as cash back, rewards for good grades and free credit scores. According to the Credit CARD Act of 2009, cardholders must be at least 21 years old or be able to show adequate proof of income.
Credit cards for bad credit: If you have a FICO score below 580, you are considered very risky by credit card companies. People with FICO scores below 580 typically do not qualify for traditional credit cards. However, there are unsecured credit cards for bad credit that you might qualify for. Read the fine print carefully so you understand what fees, such as annual fees or application fees, come with these cards.
Secured credit cards: These cards are a good way to establish – or rebuild – your credit. Secured cards require a cash deposit, which is usually between $200 to $500. Your deposit decreases the risk for the lender. You receive a credit card to make purchases, so you’re actually buying items on credit. When you close your account, you get your deposit back, unless you have an unpaid balance.
Balance transfer cards: If you have credit card debt but still have a good credit score, getting a balance transfer credit card can help you save money on interest. The best cards offer a 0% introductory APR for a specified period of time, ranging from 12 to 18 months or so. Balance transfer credit cards often charge a transfer fee, which is usually between 3% to 5% of the total balance transferred.
Rewards credit cards: These credit cards earn points or miles that can be redeemed for a variety of rewards, including cash back, travel and merchandise. They offer flexibility with multiple redemption options and some offer additional points in bonus spending categories such as gas, grocery stores or travel.
Cash back credit cards: If you want to save on everyday expenses, these cards offer cash back rewards on a range of categories. You’ll often get a different rewards rate with each category. For example, you might get 3% cash back on grocery purchases, 2% on gas and 1% on all other types of spending.
Travel rewards credit cards: There are different types of credit cards within this category. For example, there are general travel rewards cards with flexible options, airline-branded cards and hotel-branded credit cards.
After you choose the credit card you want, you can apply for a credit card online. But don’t hesitate to call the card issuer if you have questions.
Be ready to answer questions about your income, employment status and other personal information. You might get a response quickly, but you’ll still have to wait for the physical credit card to show up, which takes about seven to 10 days.
Be ready to answer questions about your income, employment status and other personal information. You might get a response quickly, but you’ll still have to wait for the physical credit card to show up, which takes about seven to 10 days.
Your credit score is a number that measures your credit risk, so it reflects how well you use credit. When you apply for credit, a credit card company requests your credit scores and reviews your credit report. Your credit score can range from 300 to 850, and the average score is around 710.
Rewards credit cards allow you to earn rewards for using your credit card. You’ll earn points, cash back or miles for every dollar you spend. These rewards can be redeemed for travel, cash back or merchandise. Rewards cards can be an excellent way to profit from your credit cards as long as you don’t carry a balance.
Most rewards cards entice new customers with a sign-up bonus. With a sign-up bonus, you will earn bonus points if you spend a certain amount of money using the card within the first few months of opening your account.
Most rewards cards entice new customers with a sign-up bonus. With a sign-up bonus, you will earn bonus points if you spend a certain amount of money using the card within the first few months of opening your account.
Most major credit card issuers offer a grace period, which is usually around 21 to 25 days, before you need to pay your bill. This is the period of time between when you made the purchase and when the payment is due.
If you pay the balance in full by the due date, you don’t pay any interest at all. But if you carry a balance, the payment for the next month will include compound interest on the balance you carried. In effect, you’ll be paying interest on your accumulated interest. For this reason, credit card debt can grow at a fast rate.
If you pay the balance in full by the due date, you don’t pay any interest at all. But if you carry a balance, the payment for the next month will include compound interest on the balance you carried. In effect, you’ll be paying interest on your accumulated interest. For this reason, credit card debt can grow at a fast rate.
If you’re able to manage credit responsibly, you may benefit from carrying more than one credit card. With multiple cards in different categories, you can maximize rewards and benefits and build a strong credit history. Whether you have too many credit cards depends on your spending habits and your ability to repay.
Your credit report contains personal identifying information, financial account information, your payment history and any negative items, such as a collections account. When you apply for credit, your credit report helps lenders gauge your creditworthiness. Check your credit report for free before you apply for a new credit card.
If you plan to make a big purchase and would like to spread out the payments to make it easier, consider using a credit card with a 0% introductory purchase APR. Many of these low-interest credit cards offer an interest-free period of 12 to 18 months.
Credit card debt is toxic debt because you pay compound interest on the balance. So, take a break from credit cards, pay off your debt and make sure you can use cards responsibly before getting a new one.
Credit cards that charge an annual fee usually have features that can make paying the annual fee worth it. Before you apply for the card, estimate the rewards you’d earn in a year to see whether the benefit outweighs the cost of the annual fee.
Before you cancel a credit card, confirm it's the best thing to do. Closing the card can harm your credit score because it can reduce your available credit and shorten your credit history. Still, if the card has a high annual fee or it's putting you deeper into debt, it might make sense to cancel it. Just make sure you're canceling your credit card the right way.
Redeem your rewards and switch any automatic payments to another card. Pay off your balance or transfer it. Request to cancel the card either by phone or online, and confirm the card has a $0 balance. Finally, check your credit report to confirm the information reported about the closed account is correct.
Redeem your rewards and switch any automatic payments to another card. Pay off your balance or transfer it. Request to cancel the card either by phone or online, and confirm the card has a $0 balance. Finally, check your credit report to confirm the information reported about the closed account is correct.
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U.S. News Credit Card Expert
Beverly Harzog is an internationally recognized personal finance and credit card expert. She's the bestselling author of five books, including 'The Debt Escape Plan' and 'Confessions of a Credit Junkie.'
