How to Choose a Credit Card: 5 Simple Steps

 It might seem hard to figure out how to choose a credit card, but all you have to do is follow these five easy steps.

1. Look at your credit rating

This step alone helps you choose between fewer options. Don't apply for cards that need very good credit if you don't have it. Aside from the chance that your application will be denied, a hard inquiry will show up on your credit report, but you won't get a new credit card.

When you apply for credit, the lender looks at your credit report by doing a "hard inquiry." A hard inquiry can drop your credit score by anywhere from 0 to 5 points. Knowing your score keeps you from applying for cards you're not likely to get, and it keeps your score safe.

Here are the ranges of FICO scores:

Above 800 is exceptional.

Very good: 740-799.

Good: 670-739.

Fair: 580-669.

Bad: 579 or less.

2. Decide what kind of card you want to make.

It's not as hard as it sounds. If you're thinking about getting a rewards credit card, look at your budget and make a list of the things that cost you the most. Do you have a credit card that gives you rewards in those areas? If not, look for cards that have categories of rewards that cover those costs.

If you don't have a budget, what do you do? Now is the time to start making it. I don't think it's a good idea to get a credit card without a spending plan and a way to keep track of it. If you don't have a plan that keeps you from spending too much, it's easy to get into credit card debt.

To help you decide what kind of credit card to get, ask yourself:

Do I need a rewards card or another type of card, like a low-interest credit card, a card to help me rebuild or build my credit, or a card to transfer my balance?

What do I spend the most money on?

Which credit cards do I have right now?

Here's a quick look at a few different kinds of credit cards:

Credit cards for students. These cards can help students build credit before they graduate.

Balance transfer cards. Many of these cards have introductory APRs of 0%, which can help you pay off your credit card debt. During the introductory period, you can move debt from other cards to this one and pay it off without being charged interest.

Credit cards with rewards. You can get cash back, miles, or points with these cards. Some have more than one category, like 3% off groceries or 5% off categories that change every three months. Some also give a set percentage off all purchases, like 2%.

Credit cards with a deposit. A secured card can be a good way to start building or fix your credit. You have to put money down, but if you use these cards wisely, they can help you improve your credit score.

Cards with cash back. These cards come in many different styles and give cash back on everyday purchases. Some offer rewards on all purchases, while others might only offer rewards in certain categories. And some cash-back cards might have good rewards in a certain category but a limit on how much you can get back.

Rewards for travel in general. These credit cards give you rewards for travel, good perks and benefits, and the freedom to choose your own airline.

Cards made by airlines. When you use your airline card to buy things from a certain airline, you get rewards. If you have a favourite airline, this can be a good choice.

Credit cards with 0% APR. The introductory APR on these cards is 0% for purchases and/or balance transfers. These are great if you want to buy something big and pay for it over time without paying interest.

These are just some of the most popular categories, so take the time to look around and see what else is out there. For example, there are credit cards for people with bad credit, fair credit, good credit, and excellent credit, among other categories.

Once you know what kind of credit card you want, you can start comparing cards in that type. Check out the Credit Card Comparison tool on U.S. News to make it quick and easy.

Read: Best Credit Cards with Cash Back.

3. Make a list of credit cards

Now you're ready to compare credit cards. If you want a rewards card, figure out which type of rewards you want. Remember looking at your budget to determine your biggest expenses? Focus on comparing cards that cover a type of expense you don't get rewards on right now.

Once you've chosen a few cards to compare, decide which features are most important. Depending on the type of card, the questions you need to answer will be different. However, you can use this list as a guide:

What is the purchase APR, and is there a purchase APR for the first few months that is 0%?

How much is the APR for transferring a balance, and is there an introductory APR of 0%?

How long does a balance transfer card's 0% APR last?

What is the fee for moving a balance?

Is there a fee every year? Do the benefits make up for the cost?

What is the APR and transaction fee for a cash advance?

Are there fees for using a foreign currency?

Do the rewards match the way I spend money?

Is there something nice to say?

What are the perks and benefits, like not having to pay for your bags?

Are there any other fees or terms that should make you suspicious?

4. What is the best credit card for me?

By now, you've narrowed down your options and have a good idea of which credit card best fits your needs. What if no one wins?

If more than one card meets your needs, choose the one with the lowest annual percentage rate (APR). We hope you won't have a balance, which can lead to debt. But life isn't always predictable, and you might have a financial emergency like losing your job or having a big medical bill.

So, if all other things are the same, think about the card with the lowest APR in case you need to carry a balance for a few months.

Read: Best Credit Cards with Reward Points.

5. Get a credit card.

You did it! You made it through the process and are now ready to apply for the credit card you want. The majority of issuers let you apply online or over the phone.

Have your Social Security number, information about your job, and your gross annual income ready before you start the application. Since each issuer has a different application, you may also be asked for other personal information.

When you're accepted, write down the date. If you want to take advantage of a welcome offer that requires you to spend a certain amount within, say, three months, make sure you do so before the deadline. But remember that it's better to miss the deadline than to buy things you don't need just to meet it.

And if you've been given a balance transfer card, make sure you know how it works. Some issuers want the transfer to happen within a certain amount of time from the date you were approved.

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