One of the most common questions consumers ask is this: What credit card is best for me?
This is actually the best question you could ask, especially with an emphasis on "me." There are many proclamations on the Internet about which card is the very best. Sometimes, these "winners" are by category. For instance, the best cash back card, the best travel rewards card, the best balance transfer card, and so on.
But really, is it possible that there's one magic credit card that's perfect for every consumer? No, of course not. The best credit card – in any category – is the one that works for you. So how do you figure out which credit card is truly the best for you? It's easier than you think. All you have to do is ask yourself the following three questions and you'll be on your way to finding your ultimate credit card.
Question #1: What's Your Credit Rating?
At this point, it helps to know if you have excellent credit, good credit, fair credit, poor credit, or bad credit. The reason you need to know this is so you can avoid applying for cards you can't possibly qualify for. For example, if you have a 660 FICO score, that's in fair credit territory. If you apply for a card that requires excellent credit, which is 750-plus, you'll most likely be turned down for the card.
Every time you apply for credit, you usually lose anywhere from two to five points off your score. Think about the SAT you once had to take. You got penalized for wrong answers, and so guessing was not recommended unless you had narrowed down the choices. Well, credit scores and credit cards are like the SAT when it comes to guessing. You'll be penalized for guessing the wrong answer! So know your score or at least your range and focus on the cards within your credit status.
Question #2: Do You Ever Carry a Balance?
Okay, if you tend to carry a balance, take rewards cards off the menu. These cards have higher APRs and you'll pay more in interest expense. But dig a little deeper and ask yourself if you should be using cards at all. It's never a good idea to carry a balance because it often leads to debt. So decide if you're better off reworking your budget and cutting expenses so that you can make ends meet every month.
But if you don't carry a balance, welcome to the world of rewards credit cards. There are many different types to choose from and the next question will help you zero in on the best category for you.
Question #3: Which Credit Card Rewards Match Your Lifestyle?
This requires doing a lifestyle audit, which isn't as bad as it sounds. Take a look at your expenses over the past six months to a year. What patterns do you see? Do you spend a lot on gas because your job requires a lot of driving or because your kids have a million after-school activities? Do you purchase a ton of groceries because you have four kids? These are the kind of things you're looking for.
Now, once you decide you want a rewards card, you're ready to choose the category. Here's are some highlights of a few popular categories:
Cash back. Cash back cards tend to offer rewards that help you save on everyday expenses. Here are examples of the types of rewards you'll find: gas purchases, restaurants, movies, Amazon.com, Starbucks, groceries, and department stores. There are cards with quarterly rotating categories, cards that offer an across-the-board cash back rate on all purchases, and cards that offer different reward rates by category.
Travel rewards. This is a broad category, but relax, it's easy to narrow it down to decide what the best credit card is for you. Get specific about your needs and wants. For instance, if you like to fly on one airline, then you can consider an airline-branded credit card. If you like to fly on different airlines, then a general rewards card might be the better option for you. Many travel cards have annual fees, but in some cases, it's justified by the generous rewards program. If you don't want to pay an annual fee, then take those cards off your list right away.
Low APR cards. If you carry a balance, this is the type of card you should be using to minimize interest expense. It's already been mentioned that if you carry a balance regularly, you should think about whether you should be using credit cards at all. But even if you pay your cards in full every month, it's a good idea to have a low APR card for emergencies.
There are many more categories of credit cards, such as balance transfer cards and student cards, and you can compare credit cards right here on LendingTree. When you narrow down your choice to a specific type of rewards, examine each card and determine which one gives you the type of rewards you're looking for and at the lowest cost.