â€œPick a card. Any card.â€
The only time you might want to hear these words is when a magician gives these instructions after fanning out a deck of playing cards before you. This is not, however, the advice you want to hear if youâ€™re choosing a credit card. It is certainly not recommended to select a credit card based on a loose suggestion or because you think your mom might have used a particular card. Even name familiarity alone shouldnâ€™t drive your decision.
Choosing your perfect credit card takes a bit of time and research. Along the way, youâ€™ll learn about building credit; credit scores; balance transfers; rewards cards; and all of the other words and phrases that go along with owning and using a credit card.
So, what to do first? And whatâ€™s the next step after that? Letâ€™s take a look at the journey youâ€™ll need to take to lead you to your perfect credit card.
Checking Your Credit Score
Credit scores, which essentially reflect your credit risk, generally fall into five categories, including very good, good, and poor. There are credit cards out there for those who possess even poor credit scores, but why apply for one if you have very good credit? Or why waste your time applying for the best credit cards with all of the best perks if you have only a good or poor credit rating?
Credit score ratings differ among scoring models; one of the most commonly used is the FICO scoring model, and these scores are as follows:
Bad: 300 – 629
Fair: 630 -689
Good: 690 – 719
Excellent: 720 â€“ 850
Information that affects your credit score could be payment history, length of credit history, amounts owed, the number of types of credit currently being used, and the number and frequency of account inquiries (the amount of times your credit score is checked, either by you or a third party).
You can obtain your credit score in a number of ways. Many credit card companies will provide your score free of charge. Other free resources from which you can obtain your credit score are NerdWallet and CreditWise (in many cases checking your scores using these resources will not affect your credit). You could also purchase your credit score from one of the three major credit reporting agencies: Experian, Equifax, or TransUnion.
Note: donâ€™t confuse credit score with credit report. Your credit report does not show your credit score.
Selecting Your Credit Card Type
Store credit cards. Student credit cards. Rewards cards. Secured credit cards. How to choose?
Your decision will be affected mainly by your credit score, which is why we had you do that first. A 400 on your credit score, for instance, will not qualify you for a rewards card, since these have perks available mainly for those with very good and exceptional credit scores. Rewards might be earning cash or points on purchases or receiving discounts from some retailers.
With a lower credit score, you would select a credit card designed to help you build credit; these would be secured credit cards or student cards, for the most part. For the former, you will basically open the card by making a cash deposit. Your credit limit for that card = your deposit. This protects the credit card issuer, who can take the money owed on your card at any time by using the deposit if you donâ€™t pay your bill. (Suggestion: You might look for a secured card that places your deposit into an interest-bearing account.)
Student cards are credit-building cards. You start with a very low limit and, through repeated use and paying the bill on time, you build credit over a period of years. Once you have established a good credit score, you are then able to apply for credit cards with higher limits and incentives.
If your score has come back as very good or excellent, you can choose those credit cards with higher limits and lots of perks, such as cash back rewards, zero-percent annual percentage rates (APRs), and no-interest balance transfers.
What Questions to Ask
When determining the perfect credit card for you, there are some questions that you should ask before moving forward. Here are some things to ask or consider:
- Does my credit limit automatically increase?
- Is there an annual fee?
- Are late fees ever waived or forgiven?
- If there is a 0% introductory APR?
- If there is an introductory APR, how long does that 0% last?
- Is there a chance I can lower the interest rate in the future as a long-time card holder?
- Can I choose the due date on my credit card?
How to Use Your Perfect Credit Card
Congratulations, youâ€™ve obtained your perfect credit card! Now what?
Make sure to use your type of credit card correctly. If, for example, you chose a card to help you build credit, donâ€™t use the full credit limit, and pay the bill in full and on time each month. If you got a card with an introductory 0% APR that will last six months, be sure to use the card to pay off some debt, such as through balance transfers without having to pay any interest. And if your card issues cashback rewards, use the card even for minor purchases and pay the bill off in full each month to build that reward.
As you can see, itâ€™s certainly not impossible to find a perfect credit card no matter what your credit score, spending habits, or credit history. Once youâ€™ve done the research, asked the right questions, and fully understand all of the conditions attached to your particular card, youâ€™re all set.
However, it doesnâ€™t stop there; obtaining the card is just the beginning. Use it responsibly and the way it is intended; donâ€™t overextend yourself where you will be unable to pay the bill in full each month and stick to your plan, whether itâ€™s building credit or earning rewards. Handled incorrectly, your perfect card will no longer be the perfect card for you, and you could watch your credit score disappear as quickly as the card in a magicianâ€™s trick!