There is a small group of people who really know credit cards. This group includes industry insiders, financial journalists, and reward travel gurus. Among this group, picking a credit card is as easy as it is for a handyman to choose the right tool for a job. They know what is available and which product will offer the right combination of benefits and costs for their particular needs. The majority of other credit card users should take it from the experts and use the following four steps:
Know your credit score. Those who pay their bills on time and carry little debt will invariably have the best credit scores. But the only way to know for sure is to obtain a credit report and examine it. While this group is likely to be approved for any credit card on the market, those with lower scores will need to choose cards with less stringent eligibility.
Consider if you will pay in full or carry a balance. Cardholders can generally be grouped into two types, those who always pay their statement balances in full, and those who revolve charges and pay interest. Cardholders who have always avoided interest payments should not be concerned about the interest rate of the cards they apply for, while those who do pay interest should learn each products APR.
While it may be an applicant’s desire to pay each balance in full, it is more accurate to use past performance as a predictor of future results. Therefore, those who haven’t been in the habit of paying each month’s balance in full should strongly consider using a card with the lowest interest rate. Cardholders like this who have no current debt should get a card that offers a 0% APR on purchases. If you still have debt, look for a credit card with a 0% APR on balance transfers and purchases.
Do you spend enough to offset an annual fee? The top reward credit cards on the market offer impressive benefits, but they come at the cost of an annual fee. While these fees can represent a good value for many cardholders, it all depends on their annual spending requirements. In most cases, reward card users must spend at least $8,000 – $10,000 to earn rewards great enough to offset that fee, with spending in excess of that amount creating rewards profit. Therefore, those with more modest spending should look for one of the many cards without an annual fee unless they choose cards that offer non-rewards perks like the free checked bags features available on many airline credit cards.
Are you committed to a travel brand? Travel rewards can earn reward points and miles that are connected to specific travel brands, or in flexible systems that apply to many different companies. Travelers committed to flying a particular airline or staying in a certain hotel chain should strongly consider the cards associated with those companies. At the same time, all travelers can use a card that offers flexible reward points that can be used across multiple brands.
Ultimately, while one card may be ideal for the average consumer, another card will work better for the business traveler. Therefore, the key to finding the right card is to match the costs and benefits of each product to the cardholder’s individual spending style.