Choosing the right credit card can feel overwhelming with hundreds of options available, each boasting unique rewards, fees, and benefits. Whether a person wants to build their credit score, travel for free, or earn extra cash back, selecting a card that fits their lifestyle and financial goals is key. This guide breaks down a proven approach to credit card selection.
Getting Started: Are You a Credit Card Beginner?
If you’re just starting out with credit cards or have only one or two, the best place to begin is by focusing on no annual fee credit cards. Here’s why:
- Approval Chances: As a beginner, your credit history may be limited. Premium cards with big rewards and perks often require a longer credit history and higher credit scores, making them harder to get approved for initially.
- Length of Credit History: This credit score factor measures how long your credit accounts have been open. Keeping no annual fee cards open for years helps build a longer credit history, positively impacting your credit score over time.
Many beginners also explore secured credit cards, student credit cards, or become authorized users on someone else’s account to jumpstart their credit history. These are excellent options if you’re starting from zero, but focusing on no-fee cards first lays a solid foundation for future credit card success.
Cash Back vs. Travel Rewards: Which Team Are You On?
Once you’ve established your credit history, your next big decision is whether to prioritize cash back or travel rewards. Both have their merits:
- Cash Back: Straightforward and easy to manage, cash back cards offer a simple way to earn rewards on everyday spending without needing to navigate complex redemption processes.
- Travel Rewards: Cards earning points or miles can offer significantly higher value, especially if you travel a few times a year. However, maximizing these rewards often requires understanding how to redeem points effectively.
For many, including seasoned credit card users, travel rewards cards offer a greater upside. For example, after graduating college, a growing passion for travel combined with a focus on personal finance led many to lean toward travel cards, using rewards to offset travel costs while managing a limited budget.
Key Considerations for Travel Credit Cards
The Chase 5/24 Rule
If you’re eyeing Chase credit cards, one important factor to know is the Chase 5/24 rule. This unofficial rule means if you’ve opened five or more personal credit cards across all issuers in the past 24 months, Chase will likely deny you for new cards. This rule emphasizes the importance of timing your Chase card applications strategically to maximize sign-up bonuses and rewards.
Flexible Points Currencies
When choosing travel cards, it’s wise to prioritize those that earn flexible points currencies, such as Chase Ultimate Rewards or American Express Membership Rewards. These points can be transferred to various airline and hotel partners, giving you multiple redemption options:
- Convert points into hotel loyalty programs like Hyatt or Marriott.
- Transfer to airline miles with partners like United or British Airways.
- Redeem points directly through the card issuer’s travel portal for flights, hotels, or car rentals.
- Even redeem points for cash back if desired, providing versatility.
In contrast, airline or hotel-specific cards lock you into one program, which can limit flexibility. Starting with flexible points cards allows you to explore various travel options and find the best value.
The Three Most Important Factors When Choosing a Credit Card
After deciding on your rewards type and issuer strategy, focus on these critical elements:
- Welcome Bonus: Sign-up bonuses typically provide the highest immediate value. Look for bonuses with spending requirements that fit your budget. For instance, spending $500 in three months to earn a $200 bonus is reasonable for many, whereas premium cards might require $4,000 in three months for a larger point bonus.
- Annual Fee: Higher bonuses often come with annual fees. Don’t shy away from paying fees if the card delivers positive net value through bonuses, rewards, and benefits. For example, a $95 annual fee can be worthwhile if you receive a $750 travel credit bonus plus ongoing rewards.
- Points or Cash Back Categories: Choose cards that align with your spending habits. If you plan to hold multiple cards, you can optimize by category—one for groceries, one for travel, one for dining, etc. If you prefer fewer cards, find one or two that cover your highest spending categories well.
Evaluating these factors together helps you determine if a card offers value in the first year (thanks to the bonus) and beyond (through ongoing rewards and benefits).
Additional Benefits to Consider
While welcome bonuses, fees, and rewards categories are paramount, don’t overlook other perks that can enhance your experience, especially for travel:
- Travel insurance and protections
- Primary auto rental coverage
- Airport lounge access
- No foreign transaction fees
The value of these benefits varies by individual. For frequent travelers, airport lounge access and rental car insurance can significantly improve the travel experience and justify annual fees.
Common Questions About Choosing Credit Cards
What if you don’t want to keep a card with an annual fee?
Before applying, ensure the card’s value exceeds its cost in both the first year and subsequent years. After the first year, if the fee feels too high, you have options:
- Retention Offers: Contact customer service to request incentives like bonus points or statement credits that offset the fee.
- Downgrade: Some issuers allow downgrading to a no-fee version of the card, preserving your credit history while eliminating the fee.
Not all cards offer downgrades, so research this before applying.
What credit score do you need to get approved for the best credit cards?
While approval depends on many factors, aiming for a credit score in the 700s alongside a solid income improves your chances for premium cash back and travel cards. Focus on building credit by paying on time and maintaining low credit utilization. Beginners may need to start with secured or no-fee cards to build their profile.
Should you consider APR when choosing a credit card?
If you pay your balance in full every month, APR is not a major concern. However, carrying a balance means interest charges can add up quickly, especially with high rates common today. The best practice is to treat credit cards like cash—only spend what you can pay off monthly to avoid interest entirely.
Are zero percent APR offers worth it?
Generally, no. These offers are short-term and can encourage carrying balances, which is not advisable. Zero percent APR can be useful in specific situations like business purchases or balance transfers, but they should not be the primary reason to open a card.
Final Thoughts and Recommendations
Choosing the right credit card is a balance of understanding your credit history, spending habits, and financial goals. Beginners should start with no annual fee cards, build credit, and then decide if cash back or travel rewards suit them best. For travel enthusiasts, flexible points currencies like Chase Ultimate Rewards or Amex Membership Rewards offer unmatched versatility.
Prioritize welcome bonuses, annual fees, and rewards categories to ensure you gain positive value. Don’t forget to consider additional card benefits that can enhance your lifestyle, particularly if you travel frequently.
For ongoing research and to discover the best current credit card offers, resources like Slickdeals provide up-to-date information and comparisons that simplify the decision-making process.
Ultimately, the best credit card is one that fits your unique needs, helps you build credit responsibly, and maximizes your rewards without unnecessary costs.