Credit cards can be a powerful tool or a horrible crutch for your personal finances.
To enjoy success with credit cards, account holders have to juggle balances, due dates, minimum payments, interest rates, and other aspects of the account. When managed poorly, credit cards can lower your credit score and lead to thousands of dollars in interest. But when used responsibly, they can improve your credit score while offering valuable rewards like cash back and free travel.
Decide if Credit Cards are Right for You
Before you worry about which credit card is best, look at your finances and try to understand if a new credit card makes sense for you in general. Based on your past spending habits and experience with credit cards, are you able to manage and track your credit responsibly? Do you always make on-time payments or have you missed a few in the past? This is all important to take into consideration before applying for a new credit card.
If you handle credit responsibly, you will watch your credit score climb giving you access to better credit cards and lower interest rates. However, late and missed payments lower your credit score and can trigger default interest rates, which can be around 30%! If you pay off your credit card in full every month, youâ€™ll never pay more than an annual fee. However, late and missed payments can be very, very costly both on that credit card and in the long-term when it comes to mortgage and auto loan approvals and interest rates.
Credit cards are a tool that can be used productively to improve your finances, but if you are not careful they become very expensive. Only sign up for new credit cards if you know you can use them responsibly.
Review Your Credit History
The next step in choosing the right credit card for you is to review your personal credit history. The government requires each of the three major credit reporting bureaus to give you a free credit report annually at annualcreditreport.com. There are many other free tools to find your credit score and credit report as well.
When approving you for a new credit card, the bank looks at both your overall credit score and your history managing credit accounts. Some credit cards are reserved for those with the best credit scores while others are available to nearly all applicants. Having a better grasp of your credit history will help you narrow down which cards you may qualify for compared to those that may be out of reach.
Choose Your Rewards Priority
Some credit cards offer low interest rates, long 0% APR introductory periods, and low fees. Others are focused on cash back or travel rewards. When choosing a credit card, it is important to understand what you prioritize so you can make the best choice.
People who typically carry a balance and donâ€™t pay their card off in full every month may want to avoid credit cards completely. But if you do want to stick with credit cards and carry a balance, low interest cards with long 0% APR periods are the best option. Cards like Chase Slate are designed for this type of need.
If you want cash back when you shop, youâ€™re in luck! Every time you swipe a cash back credit card, you can earn valuable cash back that you can redeem to pay off your balance or for cash in your pocket. Some credit cards use rotating bonus categories to give up to 5% cash back on select purchases. One of the best simple cash back cards today is Citi Double Cash, which gives you an effective 2% cash back on all purchases.
Many high credit individuals choose credit cards with travel rewards. With this type of credit card, you can redeem miles and points for free flights, hotel nights, cruises, train tickets, travel experiences, and more. The Chase Sapphire Preferred and Barclay Arrival Plus both fall into this category.
Look for Top Credit Cards in Your Favorite Category
Once you have decided between low rates, cash back, and travel rewards, itâ€™s time to research the top credit cards in the category. There are extensive online resources to help you make the best decision. Here are a few favorites to choose from:
- Â Â The Points Guy â€“ The Points guy is a travel rewards and travel hacking website that offers reviews, tips, and the best current deals available. Some signup bonuses can be worth thousands of dollars in free travel. Find them here.
- Â Â SmartAsset â€“ SmartAsset offers a mix of detailed reviews and summaries by credit card category. Search for the best card with low fees, the best card for travel rewards, the best card for cash back, and review cards by credit requirement to get a better idea of your approval odds.
- Â Â NerdWallet â€“ This personal finance news site offers great reviews on credit cards by category. Before applying, this is another excellent resource to review the pros and cons of each card.
Apply for the Best Deal
Now that you know your credit, know what type of card you want, and picked out the best cards of that category, it is time to choose your favorite credit card and apply! Note any signup bonuses and requirements, then go with your favorite card.
Virtually all credit cards are now available through online applications. Just click the link, fill in your information, and in some cases you will get an instant approval decision in seconds. In other cases, you may have to wait a bit longer to find out if you got the card. Just be sure not to apply for too many cards at once, as that can temporarily harm your credit score and might prevent getting approved by some cards.
Depending on your credit history, you may not be approved for every card. However, you only need one awesome credit card in your wallet to meet your financial goals. Once you are approved, be sure to pay in full each month to save money while enjoying rewards for years to come!
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