From rewards programs to annual fees, interest rates to travel considerations, there’s a lot to think about when choosing a credit card. Let’s break down some of the key points to keep in mind when you’re looking at which credit card is best.
Annual fees
One of the first things to consider is what it will cost you to use the credit card. While some offer no annual fees, others can set you back a couple hundred dollars a year. Typically, premium cards with higher fees come with added perks like better rewards programs, travel insurance, or concierge services. However, if you’re just starting out or don’t use your credit card often, opting for a no-fee card might be the smarter move.
*Nerdy tip* For your first credit card, choose one with no fees. The longer you have that credit card open, the better it is for your credit score. If you choose one with fees but cancel it later, it’ll hurt your credit score.
Annual percentage rate (APR)
APR is the amount of interest you’ll pay on any outstanding unpaid balance. Look for cards with low APRs if you plan to carry a balance.
Foreign transaction fees
If you’re someone who travels frequently or shops online with international retailers, then you should check whether the card you’re looking into has foreign transaction fees or not.
Foreign transaction fees are additional charges added by credit card issuers when you make a purchase in a foreign currency, or from an international merchant. These fees are usually around 2.5% of the transaction amount and are tacked onto your total bill, making your international purchases more expensive.
Credit card rewards
Many credit cards offer rewards or cashback just for signing up and using them for specific purchases. You can earn perks like Air Miles, cashback on everyday items like groceries, gas, transportation, and more. To get the most out of your card, choose one that matches your spending habits. If you frequently spend on groceries, gas, or travel, look for a card that offers bonus points or higher cashback in those areas to maximize your rewards.
Combine credit cards for maximum rewards
There is no limit to the number of credit cards you can own, and owning multiple has both its advantages and its drawbacks.
Advantages
- Maximize rewards: Cards come with unique rewards, like travel points on one and cashback on groceries on another. Using each card for its specific rewards category lets you earn more overall.
- Increased credit limit: With multiple cards, your total available credit limit goes up, which improves your credit utilization ratio and can boost your credit score.
- Financial flexibility: Having several cards means you have backup options for purchases and emergencies, offering more flexibility in managing your finances.
Disadvantages:
- Complex management: Juggling multiple cards can become complicated. It would be easy to miss payment due dates, which can lead to late fees and interest charges.
- Hard inquiries: Each time you apply for a new card, it triggers a “hard inquiry,” which can lower your credit score. This is particularly risky if you start opening cards when you’re planning to seek other types of financing as well.
- Perceived financial instability: Applying for too many cards in a short period can make it look like you’re struggling financially, which will also harm your credit score and can lead to a lender denying you.
This is not to say you should go out and open 100 different cards or to only have one card. You should do what makes the most sense to you with your purchasing habits. The average number of credit cards people tend to have is two to three different ones, and one of the easiest ways to manage them would be to set reminders on your phone for when payments are due. You can even go a step further and set up monthly auto payments and have $10 go towards the unpaid credit card balances every month, so at least you won’t be charged a late fee or incur that initial drop to your credit score.
To learn more about how credit scores can make or break your financial standing, check out this article: https://www.financialpipeline.com/how-to-maintain-a-great-credit-score/