Credit cards have a bad name in the personal finance world, you’ll find many bloggers shredding their credit cards and have negative things to say about credit cards. Often it is not the credit card that is the problem, but rather the person is being irresponsible in using them. Credit cards are just a tool and if used responsibly they can be a big part of your finances. I am not going to get into how to use a credit card or credit card management, those are topics I’ll discuss another time, for now let’s look at how you can choose the best credit card for your situation.
- Credit Cards
1. Understand Your Needs
Before you start researching cards, find out what you need. Do you want to have a low interest, rewards or do you prefer cash back? Every card will be different, those with rewards or cash back usually have a higher interest rate, on the other hand low interest credit cards do not offer any rewards or cash back. There is also the issue of an annual fee to consider, many Gold and Platinum cards have an annual fee attached to them along with many rewards, are you willing to pay annual fees?
2. Low Rate vs. Rewards vs. Cash Back
I am sure you want a low rate credit card that offers some rewards and cash back with no annual fee. Unfortunately that does not exist (if you find it please let me know), you have to pick between a low interest credit card, rewards credit card or a cash back credit card. How to choose one that fits you? Well will you be carrying a balance on the card? If you do than low interest credit card is a better option for you or maybe you should consider a personal line of credit instead. If you do not carry a monthly balance on your credit card then a rewards or cash back card might be better for you. I personally prefer a cash back card to a rewards card; I can take the cash back and use it for anything else I want with no restrictions.
3. Check Your Credit Report
Before you start applying for credit cards, I recommend you check your credit report and credit score through one of the reporting agencies (Equifax or Tansunion). Knowing your credit score will help you narrow down the cards you may qualify for. If you do not have a great credit score you will not be able to get the best deals or a low interest card, do not waste your time or hurt your credit by applying for cards you know you will not qualify for.
4. Research
By now you should know your needs and you know your credit score so it’s time to do some research. You can simply start by visiting the major banks websites and pulling up the credit cards that fit your needs, ones you have the list compare them against each other. If looking for low rate credit card, list them in order of lowest to highest card then start comparing them on other metrics (such as Grace period, balance transfer etc.) If you are looking for cash back credit card rank them in order of highest cash back then start comparing interest rates, rewards, potential annual fees etc. Eliminate cards that are inferior when compared to the others and select the best option available.
5. Be responsible
Now that you have found the right credit card for you ensure you use the credit card responsibly. Do not apply for a larger amount than you can afford to pay, do not use more than 35% of your limit, pay a few days before due date to ensure they receive it on time. Keep track of your records and check your statement every month to ensure accuracy.
What type of credit card do you have? Do you mind paying annual fee for credit cards?
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Article by Ray
Ray is an ex-financial adviser and the founder of Financial Highway. Currently working in the financial industry and working towards completing his Chartered Financial Analyst, CFA, designation.
Ray has written 271 articles.
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{ 5 comments… read them below or add one }
I use an American Express Platinum card. The $95 annual fee covers 24/7 travel assistance, document replacement (including passport), rental car insurance, overnight card replacement and an extended warranty and purchase protection on stuff I buy with the card. I’ve had the card 18 years and used just about every one of these benefits. Of course, I never carry a balance.
My other half swears by his Discover Card. No annual fee and he gets 1% cash back but it’s worthless overseas.
We did a comparison earlier this year.
http://ctrlyourcash.wordpress.com/2009/05/19/a-fun-comparison/
Good post, I would also go one step further than your statement that: “Often it is not the credit card that is the problem, but rather the person is being irresponsible in using them.” and say that actually it is always the person that is the problem and never the credit card
I agree that it is not the credit card which is the problem but the irresponsible card holder. What we should always remember is that Credit Card represent debt and if one is striving to maintain financial freedom then having Credit Card in your possession will not give you one.
Generally speaking, I see no good use of credit cards other than convenience. Most Americans don’t know how to handle them and are in deep debt because of this. At least 60% of those having credit cards don’t pay the balance off each month. But I would agree, it’s not the card that is the problem, it’s the bad habits of the person using it that is the underlying issue. Even if you pay the card off each month, you’re still playing with snakes. The credit card companies are legalized loan sharks.
Thanks a lot for this very informative post, it is really helpful in me having trouble choosing on a Best Credit Cards.
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