With so many credit cards available, it’s not surprising that careful thought is required to decide which one to select. Many folks, especially Millennials, have a cautious attitude towards credit, perhaps due to large student loans. Nonetheless, the right credit card, responsibly managed, can provide you with features that improve your lifestyle. Even if you have no credit history, almost everyone can qualify for some kind of credit card. Read on to learn which factors to consider when choosing the card that suits you best.
Your First Card Might Be Basic
If you have a low credit score, your next card will offer probably offer few frills and a modest credit limit. The good news is that there are many cards that match this description and that charge no annual fee. You can use your credit card to improve your creditworthiness by making timely payments. After six to nine months of responsible use, the credit card companies will be much more willing to offer you their fancier cards.
Cash Back, Points or Miles?
Many cards offer rewards when used to make purchases. Cash back cards offer cold hard cash, the most versatile reward. You’ll find cards that offer 3% to 5% back (or more) on selected purchases and at least 1% cash back on all other purchases. If you like to travel, you might consider cards that offer frequent flier miles on one or more airlines. The third type of reward, points, can be exchanged for cash or miles, or can be used to directly purchase selected items.
Cards Compete by Offering Introductory Bonuses to New Members
Many cards will pay you a lump sum bonus if you use your card for a set amount of purchases in the first three months after opening the account. You might also be offered an introductory period of 0% interest on purchases and balance transfers. The period might run from 6 to 18 months. After that, you’ll be assessed interest at a specified annual percentage rate (APR) on any remaining balance that you don’t fully pay by the due date for the current billing cycle.
No Credit? No Problem!
If you’ve never used credit, getting your first credit card might be tough. There are a few things you can do to make it easier:
- Recruit a co-signer: You are much more likely to snag a credit card if you can find a co-signer, preferably one with good credit. Both you and the co-signer are responsible for payments, although typically only you will use the card.
- Become an authorized user: You can become an authorized user of someone else’s credit card. You can use the card as if you were the primary owner. By making payments on time, you can build good credit and then get your own card.
- Get a secured card: Sometimes, the only way to get a credit card is to put up collateral. Many banks and credit unions offer secured credit cards. They are easy to get, because you must deposit cash equal to your credit limit. If you demonstrate creditworthy behavior, you’ll probably be offered a regular credit card within the first year.
Understand All the Card’s Features
Some cards offer high bonus rewards on purchases from selected types of merchants, and some of these cards rotate the merchant type each quarter. If you accept a card with rotating merchants, remember to activate your participation each quarter if you want to earn the high rewards. Some cards that charge an annual fee will waive it for the first year. Annual fees might range from $49 to $500 or more. Cards can offer all type of benefits, such as free car rental insurance and free baggage check-in. Read all the fine print before choosing which card to get.
Credit Cards Should Integrate with Your Financial Plans
Your credit card usage should fit into your savings and investment plans. It’s important to avoid chronic large credit card balances that compromise your ability to save for your retirement. If you are thinking of getting a credit card, use it as an opportunity to work with a financial planner. Together, you can work out a holistic strategy that helps you build wealth and reduce financial risk.