According to Card Ratings, the average American credit card holder has four credit cards in his or her wallet. And many of these cardholders will keep the same cards for nearly a decade before making a switch. That’s why choosing the right credit card for your needs is crucial to reap lasting benefits. Here’s a few questions to ask yourself before embracing a long-term relationship with a credit card provider.
Will You Be Holding a Balance?
Before you dive into the world of credit cards, it’s important to set realistic expectations on which cards are likely to approve your application. By understanding your credit score, you can determine if your credit is in good enough standing for the card that sparks your interest.
But let’s say your credit score isn’t what you thought it to be. Your credit report will give you a breakdown of what may be holding your score back and give you better guidance on how to change your spending habits for a boost in number.
Consider Interest Rates
Choosing the right credit card takes more depth than just finding something to charge your day-to-day expenses to. Understanding interest rates and APRs will help you narrow down your options to what is best suited for your spending and payment habits.
What is an APR?
To simply put it, an annual percentage rate is how much it costs to borrow money from the bank over the span of a year. These interest rates are calculated by how much of a balance you carry over month to month and can vary depending on which credit card you choose to pursue. For example, if your credit card’s interest rate is 18% and you carry a $500 balance, then your annual interest rate would be about $90.
While interest rates can take a toll on your balance, the good news is you can avoid the extra expenses overall by paying your statement balance in full by the due date of each billing period.
Rewards That Would Benefit You Most
Once you’ve established your credit score and narrowed down your search by interest rates, it’s time to get to the good stuff—the credit card perks. Choosing a card based off the rewards can be exciting, and oftentimes, overwhelming.
With so many credit cards on the market and an abundance of detailed information to sift through, the credit card comparison process can become tedious. But breaking it down between cash back or travel perks is a starting point that will make the rest of your credit card hunt a smooth process.
Credit cards with cash back
There are very few things better than earning money while spending it. A popular choice by many cardholders, cash back credit cards are an easy way to build a small savings through everyday spending. While some cards offer a flat cash back rate on all purchases, others give increased cash back across certain spending categories such as dining, groceries and gas.
But how does cash back work? Typically, the average rate on cash back is one to two percent per purchase. For example, if the cash back percentage is 1% and you spend $2,000, you’ll earn $20 in return. And, paying close attention to sign-on bonuses can give you a hefty kick start to your cash back rewards—some as large as $600.
Credit cards with travel perks
Save for your dream vacation with little to no effort through perks on travel purchases like flights, hotels and transportation. Travel reward cards like the Chase Sapphire offer transferrable points to numerous frequent flyer and hotel loyalty programs, giving cardholders the flexibility to use their rewards toward almost any travel expense.
If you have a preferred hotel or airline that you book through regularly, you may be better off applying for a card specific to your travel needs. For example, using a travel-specific card like the IHG Rewards Club card will get you a free night at any Holiday Inn location through the $80 annual fee, in addition to the points you’re collecting throughout the year.
What it Comes Down To
While there are many credit cards with enticing rewards, narrowing it down to one that will best suit your financial needs and spending habits is the first step. Consider your credit score and annual percentage rates before looking into credit card perks, and be sure to factor in the sign-on bonus as it may change month to month. Finding the right card is a financial journey but discovering the right match can offer endless benefits for the years to come.