Choosing the Best Credit Card for Your Needs

Ah, credit cards: So attractive at first, so complicated later on – at least, if you’re not careful in choosing the exact best card for your particular situation. Let’s get you started on the path to successful, responsible credit card use:

Assess your credit situation

Obtain a free copy of your credit report from any one of the three major credit bureaus, and sign up for a free credit scoring service with any number of providers (but make sure there aren’t hidden obligations attached to sign-up, such as credit monitoring for a fee). Also be conscious of the fact that requesting a credit report will temporarily decrease your credit score, so make sure you’re not doing it too often.

If your credit is poor (in the 500-599 range of FICO, VantageScore or TransUnion’s scoring models) or mostly nonexistent, your options are limited: there are providers of unsecured credit cards – the card type you see most often – who will approve you with such scores. However, many of these cards have annual or monthly fees (or both!), interest rates north of 30%, and other conditions attached to them that aren’t worth dealing with. Also, Money Under 30 noted that limited credit means you’ll get little or no rewards or other perks with your card. If you can’t afford to pay the bill off each month, you’re better off considering alternative financial options.

At this point, you’re better off signing up for a secured credit card instead. Secured card providers often accept low-credit applicants because individuals must deposit some of their own money to make purchases, lowering the risk to the company. Buying items with a secured credit card and making timely payments will help you build credit and eventually move on to an unsecured card that offers much better terms than what you could have previously acquired.

Choosing the right card

If you’ve got credit sufficient to apply for an unsecured card, you should. Establishing a record of consistent transactions and payback is the essence of building credit. Before selecting your cards, carefully examine the different types that are available:

• Standard unsecured credit card: No frills here – you buy items and pay back the minimum every month. Be cognizant of your credit limit, APR on purchases and annual fee. (That said, numerous cards waive annual fees, APRs or both for the first year to entice buyers).
• Gold, platinum and other higher-echelon cards: Usually these attractively named cards offer higher credit limits and other perks (and higher annual fees). If you’re eligible to apply for them, be sure that the advantages are worth the added yearly cost.
• Rewards cards: Cards that offer cash-back rewards or frequent-flier-mile accrual can provide your finances with a small but consistent boost in return for using them (and paying back balances on time!). The latter is especially helpful if you’re a constant traveler, whether for business or for pleasure.
• Business credit cards: If you’re a small-business owner or freelance consistently, this might be your best credit option. Spending limits are higher, and the rewards will more likely be for business-related purchases like phone and internet bills. Keep in mind that expenses likely affect both your personal and business credit scores.

Adding a credit card to your wallet is a significant and important step in improving your overall financial health, as long as it is used responsibly. Make sure to put a good deal of thought into which option is right for you before making a selection, as you certainly want to avoid taking on more debt than your budget can support.