Whether you’re in the market for your first credit card, or your fifth, it’s best to go into the process with a plan.With so many cards available, how can you know which is the best for you? Here are five steps you can take to make an informed decision, boost your financial awareness, and help you pick the right credit card for your money needs.
Credit scores play a big role in the decisions credit card companies make about your application. It makes sense to check your score before you start shopping around, so you’re more aware and know what to expect. Knowing your score also puts you in the driver’s seat to make better informed decisions about credit, so you can continue boosting your numbers and getting access to those highly sought-after cards.
Where can you get your credit score for free? Some credit card companies and banks will let you see your FICO score on your monthly statement at no cost to you. Otherwise, you can find it from each of the three major credit bureaus—Experian, Transunion, and Equifax—for a fee.
If your credit score is a surprise, you can look into it by accessing your free credit report from each of the agencies. You’re allowed one free peek a year. Dispute anything that isn’t accurate and wait to see if those corrections make your score go up.
If you haven’t applied for a new credit card in some time, you may not be aware of all the options available to you. Cards tend to fall into specific categories based on intended use, perks, and fees. To get the best experience, ask yourself these questions before settling on a card type.
For those with no credit history or a very low score, a card designed to build credit is ideal. These credit cards may be marketed as credit cards for bad credit or no credit. They are usually more open to those who are still working to fix past credit mistakes or who never had a credit card before.
These may require a security deposit, too, and they tend to have a low credit limit or higher interest rate compared to other cards, since the card issuer is taking on more risk. Student credit cards often fall into this category.
If you’re looking to earn cash back rewards or accumulate points from purchases, the rewards credit cards category is for you. Keep in mind that it’s important to pay down your balance each and every month so you can avoid accruing interest that may cancel out any value you earn with your card.
Rewards vary based on spending habits and which company issued the card. A retail store card, for example, may reward you with statement credit or gift cards you can use in-store. Cash back credit cards, like the Petal 2 card, work exactly how they sound and allow you to get cash back on eligible purchases.
Do you have your eye on a big furniture item or want to finance your next vacation with credit? If a new purchase with a big price tag is in your future, you may want to consider how a zero-percent interest card can help you.
This type of card is typically advertised with an introductory offer for new card holders. For example, you may receive a 0% interest rate for a duration of 6 to 18 months, which provides you with interest-free spending before the card reverts to its regular annual percentage rate (APR). This can be a suitable alternative to a personal loan.
Are you already carrying a balance on a credit card? A balance transfer credit card could help you reduce the amount of interest you pay each month. With a zero-percent or low balance intro transfer rate, you can take your debt on a high interest card and move it to your new card.
Watch out for any balance transfer fees, however, since these can cost between 1-5% of the total amount transferred. This amount could cancel out any savings, so do the math before you make the switch.
Keep in mind that some cards will fall into more than one category, so rank your priorities and look for the card that best meets your needs.
Even if you’ve picked the right category of cards, you have some more work to do to narrow down your selection.Answering these questions can help.
● How much does it cost to open an account? It’s common for cards marketed to students or those with no credit to require a fee or security deposit. Read the card terms and disclaimers carefully to know what it will cost to sign up. Many cards of this type will deduct fees from your total available credit line, leaving you with a reduced credit limit.Secured credit card issuers may ask that you fund the deposit with cash from your bank account. Know the cost of this credit before you hit the “apply”button.
● Will this card help me build credit?It’s assumed that all credit card companies report your on-time payments to the three major credit agencies, but not all do. Inquire before you apply if you’re not certain.
● Can I get a better credit card later on?If your card is designed to help you build credit and reports to the credit bureaus, you can use your on-time payment history to raise your score and get access to better cards. If the card doesn’t report, it’s useless for building credit and not a stepping stone to good credit.
● How long is the 0% APR period, and what’s the regular APR? Cards with an introductory low rate will eventually shift to a regular APR after the promo period expires. Plan out your expenses to see that you can pay off your transferred debt or purchases before the promo period expires. If you can’t do this, look at the rate it will increase to and make sure it’s not too high to meet your debt repayment goals.
● What is the card’s balance transfer policy? In some cases, the card’s entire limit may not be eligible for balance transfers. Of the amount that is available, what is the fee for transferring? Knowing these details ahead of time can save you frustration and fees when making the switch.
● Does the card offer rewards? Cards that advertise their balance transfer or low-interest offers may not always state their rewards clearly. That doesn’t mean they don’t offer them. Look at the card terms to see what other perks you may enjoy after the promo rate period is over.
● How will I spend my money? You can get the most from a card when your spending habits match up with the categories that offer the best rewards. If you spend most on fuel, for example, look for a card that has a higher reward rate for spending at gas stations. Factor in additional costs, such as annual fees and foreign transaction fees, to ensure that any rewards you earn will offset the cost of card ownership and use.
● How complicated is the rewarding policy?Ideally, you should get rewards automatically and have the ability to cash out easily. Unfortunately, some rewards programs make it difficult to get your perks. Whether it’s a travel reward card with blackout dates or a cash back card with very high redemption minimums, avoid cards with complicated or obtuse rules for getting your rewards.
● How quickly can I get the rewards? Cards vary in how they provide their rewards, with some offering real-time payouts that you can use right away. Others only dispense perks quarterly or even annually. Know how long you’ll have to wait to get your benefits, as well as the actual dollar value of your points or miles.
After you’ve gone through the questions above, you should have just a few cards that still meet your requirements. How can you make the right choice? Look for card features that sweeten the deal while helping you move forward with your personal finance goals.
For student and secured cards, consider how your security deposit will be used. Will it earn interest? Will you get it back when you close your account? You should also read the terms to see when you’ll get access to a higher credit limit, if at all. This may happen automatically after several on-time payments, but some lenders need you to request a formal review.
Cards with low intro interest rates can give you a way to plan out your payments and see that you’ll get your debt paid before the promo period ends. What tools do they offer to help you with the math? Additionally, inquire about late fees or penalty APRs, which can costa pretty penny to account holders. Cards that waive these charges are an attractive option.
Rewards cards, including travel and cash back rewards, should have low thresholds before you get that first reward.Also, check to see that the rewards don’t expire if you can’t get around to using them right away. This is especially important for travel cards, since you may be saving up for a big trip in the future.
Ready to move ahead with the credit card application? If you’ve done your research, you should feel comfortable with the choice you’ve made between credit card offers. Here are some additional tips to keep in mind:
● Include all your income on the application, which may include spousal income and support, scholarship money, and allowances.
● For balance transfer cards, have the account information for your other credit accounts handy. You’ll be asked for numbers, addresses, and balances for the accounts you want to pay off at the time of application.
● Use a cell phone number on the credit card application. Some card applications require SMS messaging or2-factor authentication to check on your account status or receive important notifications. Fill out your application with your cell number to ensure you never miss a message.
You shouldn’t take picking a new credit card lightly, but once the application is in, you can sit back and take a breath. You may know about the card company’s decision right away, but some cards could take up to a week to let you know if you’ve been approved. Whatever card you pick, taking the time to narrow down the decision will reward you with a good fit for your future financial goals.
With the Petal 2 card, you earn cash back with every swipe, starting at 1.0% on all eligible purchases and you can get an additional 2%-10% at select merchants. Learn more about the Petal 2 card today.
This blog does not provide legal, financial, accounting or tax advice. The content on this blog is “as is” and carries no warranties.
PetalCard is issued by WebBank, Member FDIC.