Choosing the Right Credit Cards

Key factors in a good credit card

Often the problem people run into with a credit card is that didn’t pay enough attention to the details before they signed up. You see a commercial for a new card and it seems like it offers these great rewards, but you end up with high fees and terms you didn’t expect. As a result, you have a card that doesn’t work exactly the way you wanted it to, so you have to adjust your strategy around the account instead of finding a card that fits the strategy you want.

To make things easy, these are the key factors you need to consider when you apply for a card:

Interest rate

Interest rates are the cost of borrowing money, expressed as a percentage. When choosing a credit card, carefully examine the introductory rate and, crucially, the standard rate that applies afterward. Also, be aware of rates for balance transfers, cash advances, and the penalty APR that triggers with missed payments.

Fees

When evaluating credit cards, it’s crucial to understand the fee structure. A good credit card minimizes unnecessary expenses. Begin by considering annual fees; cards with low or no annual fees are generally preferable. Then, focus on fees relevant to your intended card usage. For example, if you plan to consolidate debt, a low balance transfer fee is essential. However, if you primarily use the card for everyday purchases, other fees, such as foreign transaction fees or late payment penalties, may be more significant. By carefully considering the fee structure in relation to your specific needs, you can select a credit card that offers genuine value and avoids unnecessary costs.

Rewards

Credit card rewards are incentives offered by card issuers to encourage spending. They allow you to earn back a portion of your spending in various forms, effectively turning everyday purchases into opportunities for financial gain. To truly benefit from rewards cards, make sure you pay your balance in full each month. This avoids interest charges, allowing you to reap the full rewards of your spending.

Types of credit card rewards:

• Cash back: Earn a percentage of your spending back as a statement credit or direct deposit. This is a straightforward and versatile reward.
• Travel points/miles: Accumulate points or miles that can be redeemed for flights, hotels, rental cars, and other travel expenses. Ideal for frequent travelers.
• Points for merchandise/gift cards: Redeem points for a wide range of merchandise, gift cards, or experiences through the card issuer’s rewards portal.
• Hotel/airline specific rewards: Earn points or miles within a specific hotel or airline loyalty program.
• Rotating category rewards: Earn higher cash back or points on specific spending categories (e.g., gas, groceries, dining) that change quarterly.
• Fixed percentage rewards: Earn a flat percentage back on every purchase, regardless of category.

By strategically matching rewards cards to your spending habits, you can earn on everyday purchases and turn your credit card into a tool for maximizing your finances. For example, if you spend a lot on groceries, a card with high cash back on grocery purchases is a good choice. If you travel often, a travel rewards card is beneficial.

Credit limit

A credit limit is the maximum amount of money your credit card company allows you to borrow. This is definitely a factor that may impact your decision, if the credit issuer actually lets you know the limit in advance. Bear in mind that the limit is usually tied to your credit score, so you may not be able to determine the credit limit until you actually get approved for the card.

30-day vs. revolving

This factor focuses on how the debt gets paid back each pay cycle. A revolving credit card means you only pay a percentage of what you owe, but with a 30-day credit line you have to pay off the full balance at the end of the pay cycle. This usually doesn’t work if you want to make large purchases.

Customer service quality

You want to make sure that if you have a problem, you’ll get the service and support you need to address the issue. If you’ve had a bad experience with a provider or you see online that the company has a large volume of complaints, you may be better off with a different card.

Fraud and security quality

When selecting a credit card, strong fraud protection is a must. A good credit card will offer strong security measures to safeguard your financial information. Look for these features:

• Fraud monitoring and alerts: Real-time alerts for suspicious activity, allowing you to quickly detect and address potential fraud.
• Zero liability protection: This ensures you are not held responsible for unauthorized charges made on your account.
• EMV chip technology: Cards with EMV chips provide an added layer of security against counterfeit fraud.
• Two-factor authentication: Enhanced security when accessing your account online or through mobile apps.
• Card lock/unlock functionality: The ability to instantly lock and unlock your card via a mobile app if it is misplaced or stolen.
• Secure online and mobile platforms: A reputable credit card issuer will maintain secure online and mobile platforms to protect your sensitive data.
• Identity theft protection services (optional): Some cards offer identity theft protection services, which can assist in monitoring and restoring your identity if compromised.
• Responsive customer service: In the event of fraudulent activity, access to responsive and helpful customer service is crucial.

By choosing a card that prioritizes strong fraud and security features, you can have greater peace of mind knowing your financial information is well-protected.

Having the right mix of credit cards

Using multiple credit cards strategically can be a smart financial move. It’s about building a portfolio that aligns with your spending and goals. Instead of just spending, think of them as tools to maximize rewards and minimize costs. Here’s how to create the right mix:

1. Your everyday rewards card

This card should offer consistent rewards on all purchases, like cash back. It’s your go-to for daily spending, ensuring you earn with every transaction.

Look for: A card with a simple rewards program and no annual fee.

2. Your category rewards card

Maximize earnings on your biggest spending areas. These cards offer higher rewards on specific purchases, such as groceries, gas, or dining.

Look for: A card that matches your top spending categories, and one that offers rotating categories if that fits your spending habits.

3. Your low-interest card

This card is a safety net for larger purchases or unexpected expenses that you might need to pay off over time.

Look for: A card with a low APR, especially if you anticipate carrying a balance.

4. Your travel rewards card (if you travel):

For frequent travelers, this card can unlock valuable perks, like free flights or hotel stays.

Look for: A card with good airline or hotel transfer partners and valuable travel protections.

5. Your balance transfer card (as needed):

Consolidate high-interest debt onto a card with a low or 0% introductory APR to save on interest. (Note: you usually need good credit for these cards to be worthwhile).

Look for: A card with a long introductory period and reasonable balance transfer fees.

Other types of credit cards

Gas cards 

Gas cards, also known as fuel cards, are credit cards specifically designed for purchasing gasoline and related vehicle expenses. They often come with benefits like discounts at specific gas station chains or cash back rewards on fuel purchases. Some gas cards are tied to major credit card networks (Visa, Mastercard), allowing for broader use, while others are limited to specific gas station brands. They can be useful for individuals or businesses that spend a significant amount on fuel, offering potential savings and expense tracking.

Secured credit cards

Secured credit cards are designed to help people with limited or damaged credit establish or rebuild their credit history. Secured credit cards require a deposit, which becomes your credit limit, to help build or rebuild credit. Consistent, on-time payments are reported to credit bureaus, and responsible use can lead to qualifying for an unsecured card.

Student credit cards

Student credit cards are designed for college students with limited or no credit history. They often have lower credit limits and may offer rewards tailored to student spending, like cash back on books or food. Responsible use, including on-time payments, helps students build credit for future financial needs.

Charge cards

Charge cards require you to pay your balance in full each month; they don’t allow you to carry a revolving balance like traditional credit cards. This means no interest charges, but also less payment flexibility.

Business credit cards

Business credit cards are designed for business owners, offering benefits tailored to business expenses.They often provide higher credit limits than personal cards, detailed expense tracking, and rewards optimized for business spending, such as travel, office supplies, or advertising. These cards help separate business and personal finances, simplifying accounting and cash flow management.

Premium/ luxury cards

Premium or luxury credit cards cater to high-net-worth individuals, offering exclusive perks and benefits. These cards typically feature high annual fees but provide enhanced rewards, such as concierge services, airport lounge access, luxury travel benefits, and exceptional customer service. They’re designed to provide a high-end experience and often require excellent credit scores for approval.

Store cards

Store credit cards (cards you get at department stores and other specialty stores) tend to be some of the most dangerous credit cards to use because they usually have higher interest rates and may even have harder terms to follow. As a result, managing store card debt can be tricky and problematic even for savvy consumers. With that in mind, for the most part you’re generally better off turning store cards down when they’re offered to you.

That being said, if you shop at one department store almost exclusively and opening a store account will give you access to special discounts and other rewards you wouldn’t otherwise get without it, then it may be in your best interest to open the account. Just be careful with the debt!

If you have a store account, pay it off in-full every time you make charges on the account, without fail. You also need to be careful that you don’t overspend because of all of the sale notices and incentives you’ll start to receive as a member. Some department stores will send special sale offers to store cardholders almost daily. Remember, just because there’s a sale it doesn’t mean you have to buy. Shop these offers strategically – only taking what you really need and what you can pay off in-full every month.

How many credit cards should I have?

There’s no magic number of credit cards that’s right for everyone. The ideal number depends on your individual financial situation, spending habits, and credit goals. Check out our article here for a more in depth answer. 

No matter which cards you have, you have to manage the debt

The number one rule that you must follow for any effective credit card strategy – no matter which cards you have – is that you have to pay off the debt quickly. Ideally, you want to eliminate your debt in-full every month so you can start the next billing cycle with a clean slate. Barring that, if you decide to carry a balance, you should have a manageable amount of debt that you can feasibly pay off within a few months. Any more than that is too much.