Choosing the Best Credit Card
Ask yourself the following questions when you begin shopping for a new credit card:
Your credit score is a calculation of your credit risk and how well you use credit. Credit card companies use credit scores to determine creditworthiness. Many creditors use the FICO score. If you have good (670+) or very good (740+) credit, you will qualify for credit cards with better terms. With fair (669 or lower) or poor (579 or lower) credit, you may not qualify for the most attractive card terms. However, there are cards available for those with bad credit.
Credit cards for good to excellent credit
With good to excellent credit, you will be more likely to qualify for the best credit cards, including those with rewards and no annual fees. These cards have the most attractive terms, such as lower APRs, higher credit limits, rewards and cardholder benefits. A good credit score means you’ll have more credit card options to choose from.
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 credit cards available for those with bad credit.
Credit cards for bad credit have terms that offset the risk for lenders. They may require an initial deposit, or have a lower credit limit, an above-average APR or additional monthly fees. There are two types of credit cards for consumers with bad credit: secured credit cards and unsecured credit cards. Secured credit cards require a cash deposit, unsecured credit cards do not. Using credit cards designed for people with bad credit, you can rebuild your credit rating if you use them responsibly.
Secured credit cards
Secured credit cards require a cash deposit on activation, usually between $200 to $500. This amount is typically equal to the card’s credit limit. With a deposit, secured cards are less risky for lenders than unsecured cards, so they have easier approvals and lower APRs.
Secured credit card deposits are not used for payments. Instead, they are used as collateral for the credit card company if you default on your payments. The deposit will be collected by the bank in full or in part if you default on the card agreement or if your account is terminated. As your credit history improves, you can qualify for credit limit increases and a better credit card with more benefits.
Unsecured credit cards for bad credit
Traditional credit cards are unsecured cards that do not require a cash deposit.
Unsecured cards for bad credit often have processing fees or high annual fees, and typically have higher APRs to offset the risk of lending money to someone with a low credit score. They may also lack a grace period for interest charges.
Credit cards for no credit history
Like those with bad credit, people with no credit history can find it difficult to be approved for a traditional unsecured card, which are cards that don’t require a security deposit. Because unsecured cards aren't backed by collateral, it's difficult to get approved for one if you have no credit history. However, credit card companies have credit cards designed for college students and other consumers who have not yet established a history of using credit.
Student credit cards can be a good choice for a first credit card. Many offer benefits such as cash back, rewards for good grades and credit score tracking. This type of card can typically be obtained by people with average credit or no credit history, however, many lenders will require proof of income. Additionally, the Credit CARD Act of 2009 requires cardholders to be at least 21 years old, unless you or a co-signer have adequate proof of income.
Carrying a balance from month to month on a credit card with a high APR can be very costly. If you have an existing balance, there are cards that allow you to move debt to a new account where you won’t have to pay interest on it for a promotional period of time, usually 12 to 18 months.
Balance transfer cards often have transfer fees of 3 to 5 percent of the total balance transferred, usually subject to a minimum of $5 to $10. For example, if you transfer a $10,000 balance with a 3 percent transfer fee, you will pay a $300 balance transfer fee. Some cards waive the balance transfer fee, but this is rare. Some balance transfer cards require that you complete your balance transfer within 60 to 90 days of opening the new account.
With a balance transfer card, you will pay less overall interest than if you leave your balance on a card with high interest charges. However, a balance transfer card can be risky if you’re struggling to control debt; you really shouldn’t charge anything else with the new (or old) card until you pay off that balance. You should also be careful not to miss payments, as there can be significant penalties such as losing your introductory APR.
Consumers who carry credit card debt or plan to make a big purchase can also benefit from low-interest credit cards.
Balance transfer cards often have transfer fees of 3 to 5 percent of the total balance transferred, usually subject to a minimum of $5 to $10. For example, if you transfer a $10,000 balance with a 3 percent transfer fee, you will pay a $300 balance transfer fee. Some cards waive the balance transfer fee, but this is rare. Some balance transfer cards require that you complete your balance transfer within 60 to 90 days of opening the new account.
With a balance transfer card, you will pay less overall interest than if you leave your balance on a card with high interest charges. However, a balance transfer card can be risky if you’re struggling to control debt; you really shouldn’t charge anything else with the new (or old) card until you pay off that balance. You should also be careful not to miss payments, as there can be significant penalties such as losing your introductory APR.
Consumers who carry credit card debt or plan to make a big purchase can also benefit from low-interest credit cards.
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.
Most cards earn one point for every dollar spent, but some credit cards offer a higher rate of earning for bonus categories like travel, gas, groceries and dining. You’ll earn the most rewards if you choose a card with bonus categories that match where you spend the most. Rewards cards usually redeem rewards at a value of 1 cent per point, but rewards valuations can vary depending on the program and type of card.
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 within the first few months of opening your account.
Rewards cards can be an excellent choice for people who can pay off their balance every month. They typically offer:
General rewards 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 are typically a good choice if you’re just getting started with rewards cards. Most general rewards cards earn one point per dollar and some programs offer additional points in bonus spending categories such as gas, grocery stores or travel.
Cash back credit cards
Cash back credit cards offer cash back when you spend money on your card. You’ll earn a percentage of your spending as cash back, usually between 1 and 6 percent.
Some cash back credit cards offer a flat rewards rate on every purchase. Other cash back credit cards have bonus rewards categories that allow you to earn a higher rate of rewards.
Airline and hotel rewards credit cards
Cobranded airline or hotel rewards credit cards earn and redeem points or miles with specific brands. Points or miles are typically earned and redeemed at a higher rate when you spend with the brand or in certain bonus categories. Points or miles can be redeemed for rewards with the brand and qualifying partners. They often come with the most valuable cardholder benefits such as free checked bags, priority boarding and airport lounge access.
Most cards earn one point for every dollar spent, but some credit cards offer a higher rate of earning for bonus categories like travel, gas, groceries and dining. You’ll earn the most rewards if you choose a card with bonus categories that match where you spend the most. Rewards cards usually redeem rewards at a value of 1 cent per point, but rewards valuations can vary depending on the program and type of card.
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 within the first few months of opening your account.
Rewards cards can be an excellent choice for people who can pay off their balance every month. They typically offer:
- The ability to earn cash back and other rewards as you spend
- Sign-up bonuses worth hundreds that may offset fees
- Cardholder benefits such as travel insurance, rental car insurance and extended warranties and returns
- Brand perks such as free checked bags and access to airport lounges
- Good to excellent credit requirements (a FICO score of 680 or higher)
- Annual fees and above-average APRs, which can offset your rewards
- Foreign transaction fees
- Sign-up bonuses that require at least $500 in spending to earn the bonus reward
- Caps and limitations on earning rewards or minimum redemption amounts that can put a damper on earning and redeeming rewards
General rewards 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 are typically a good choice if you’re just getting started with rewards cards. Most general rewards cards earn one point per dollar and some programs offer additional points in bonus spending categories such as gas, grocery stores or travel.
Cash back credit cards
Cash back credit cards offer cash back when you spend money on your card. You’ll earn a percentage of your spending as cash back, usually between 1 and 6 percent.
Some cash back credit cards offer a flat rewards rate on every purchase. Other cash back credit cards have bonus rewards categories that allow you to earn a higher rate of rewards.
Airline and hotel rewards credit cards
Cobranded airline or hotel rewards credit cards earn and redeem points or miles with specific brands. Points or miles are typically earned and redeemed at a higher rate when you spend with the brand or in certain bonus categories. Points or miles can be redeemed for rewards with the brand and qualifying partners. They often come with the most valuable cardholder benefits such as free checked bags, priority boarding and airport lounge access.
Many card issuers charge an annual fee that can range between $25 and $550. Many issuers waive the annual fee for the first year, especially rewards cards.
Cards that charge an annual fee may have features that make paying the annual fee worth it each year. Often, they have the potential to earn rewards that are greater than the cost of the annual fee. Others come with card benefits, such as a free companion flight or free checked bags that have a value greater than the annual fee.
If you don’t earn more in rewards than you pay in fees or you don’t get value from the card’s benefits, a card with a lower fee or no annual fee may be a better choice. Additionally, length of credit history has an influence on your credit score, so it may hurt your credit if you cancel the card because you no longer want to pay the annual fee. A no annual fee card can be a great option for this reason.
Cards that charge an annual fee may have features that make paying the annual fee worth it each year. Often, they have the potential to earn rewards that are greater than the cost of the annual fee. Others come with card benefits, such as a free companion flight or free checked bags that have a value greater than the annual fee.
If you don’t earn more in rewards than you pay in fees or you don’t get value from the card’s benefits, a card with a lower fee or no annual fee may be a better choice. Additionally, length of credit history has an influence on your credit score, so it may hurt your credit if you cancel the card because you no longer want to pay the annual fee. A no annual fee card can be a great option for this reason.
Most credit cards come with certain benefits for cardholders. Some are limited to basic benefits such as fraud protection or free FICO credit scores. Others, usually rewards cards, have more comprehensive benefits that offer additional value for cardholders. These often include:
Travel cards, particularly airline cobranded cards, have some of the best cardholder benefits available. Travel rewards cards often come with travel insurance, roadside assistance and concierge service. With a cobranded travel card, you can expect brand perks such as priority boarding, free baggage, late checkout and complimentary internet access. Some also offer free companion flights. You may want to carry an airline card just to use its cardholder benefits when you book flights with that airline, but put regular spending on a rewards card that earns more.
- Auto rental insurance
- Extended warranties on items purchased
- Return protection that extends the time limit on returning an item
- Trip cancellation insurance
- Waived foreign transaction fees
- Purchase protection that protects purchases if they are damaged, lost or stolen
Travel cards, particularly airline cobranded cards, have some of the best cardholder benefits available. Travel rewards cards often come with travel insurance, roadside assistance and concierge service. With a cobranded travel card, you can expect brand perks such as priority boarding, free baggage, late checkout and complimentary internet access. Some also offer free companion flights. You may want to carry an airline card just to use its cardholder benefits when you book flights with that airline, but put regular spending on a rewards card that earns more.
Business credit cards offer flexible and convenient capital for business needs. They make it easy to separate business and personal assets, manage accounting and keep track of tax deductions. Business credit cards are typically easier to obtain than other business funding options, such as small business loans, and may offer better features, particularly business rewards credit cards.
To qualify for a business credit card, you will need to meet certain requirements, usually providing an Employer Identification Number, proof of revenue and/or your personal credit history. Business credit card approvals for startups are often based on the borrower’s personal credit and income, while established businesses are usually assessed against a business credit score.
Business credit cards often come with the same features found with personal credit cards including:
To qualify for a business credit card, you will need to meet certain requirements, usually providing an Employer Identification Number, proof of revenue and/or your personal credit history. Business credit card approvals for startups are often based on the borrower’s personal credit and income, while established businesses are usually assessed against a business credit score.
Business credit cards often come with the same features found with personal credit cards including:
- Cash back rewards
- Airline and other travel rewards
- Sign-up bonuses
- Introductory incentives such as zero percent APR for new purchases or balance transfers
- Benefits such as extended warranty, trip cancellation or interruption insurance, or free checked bags
If you’re able to manage credit responsibly, you may benefit from carrying more than one credit card. With multiple cards, you can maximize rewards and benefits and build a strong credit history. Ask yourself the following questions when considering additional credit cards:
Are you paying your balance in full each month? If you’re not able to keep up with your credit card balance, you shouldn’t open up another credit card account unless you are trying to reduce the interest.
Do you have cards with a long account history? The longer you’ve had a credit card account open, the better that account reflects on your credit history. It’s a good idea to keep older accounts open and active for your credit history, but if your card is no longer competitive with rewards or benefits, a new credit card can provide those advantages.
Are you trying to maximize rewards? Some rewards cards earn the most when you fly with a particular airline, others with bonus categories such as groceries or gas and others have an everyday rate that’s up to double cash back. Combining these cards and using the one that offers the highest rewards rate for each type of purchase you make can maximize your rewards earning.
Do you need additional benefits? With cards that offer benefits such as free checked baggage, trip cancellation insurance and roadside assistance, you can get value from a card even if you’re not earning the most rewards from it. For example, you can use an airline card for airfare purchases to get benefits with that airline, or use a card with extended warranty coverage for a major electronics purchase.
Can you manage multiple cards? Having multiple credit cards only makes sense if you can stay on top of multiple payment due dates and annual fees while making sure your total credit card usage doesn’t exceed your budget. And to maximize rewards, you will need to plan your spending around bonus categories and sign-up bonuses.
Are you paying your balance in full each month? If you’re not able to keep up with your credit card balance, you shouldn’t open up another credit card account unless you are trying to reduce the interest.
Do you have cards with a long account history? The longer you’ve had a credit card account open, the better that account reflects on your credit history. It’s a good idea to keep older accounts open and active for your credit history, but if your card is no longer competitive with rewards or benefits, a new credit card can provide those advantages.
Are you trying to maximize rewards? Some rewards cards earn the most when you fly with a particular airline, others with bonus categories such as groceries or gas and others have an everyday rate that’s up to double cash back. Combining these cards and using the one that offers the highest rewards rate for each type of purchase you make can maximize your rewards earning.
Do you need additional benefits? With cards that offer benefits such as free checked baggage, trip cancellation insurance and roadside assistance, you can get value from a card even if you’re not earning the most rewards from it. For example, you can use an airline card for airfare purchases to get benefits with that airline, or use a card with extended warranty coverage for a major electronics purchase.
Can you manage multiple cards? Having multiple credit cards only makes sense if you can stay on top of multiple payment due dates and annual fees while making sure your total credit card usage doesn’t exceed your budget. And to maximize rewards, you will need to plan your spending around bonus categories and sign-up bonuses.
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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.'
