How to Choose a Credit Card: Step by Step

When choosing a credit card, you want one that suits your needs.

It can feel overwhelming at first, but it gets easier once you take a look at your credit profile to get a bird’s-eye view of your current financial situation.  Here, we’ll help you learn how to choose a credit card — we’ll highlight the key features to look out for, so you can find a credit card that feels like it was tailored to you.

1. See Where Your Credit Score Stands

The first step you’ll want to take is to get your credit score. Knowing your credit score gives you a solid idea of what cards you may qualify for and can even help you find pre-approved offers.

Your score doesn’t have to be perfect to land a good credit card. But you’ll at least need a score in the good range to qualify for the top credit cards with the most sought-after perks.

Don’t Stop at Checking Your Score

It’s a good idea for everyone to see what’s on their credit report. If your score isn’t in the excellent range, you’ll certainly need to make sure it’s accurate.

Check your credit history to see what accounts are impacting your score — and to make sure there are no errors hurting your credit profile. If there is a mistake, you can dispute it and potentially have your score corrected.

Even if there are no mistakes on your report, you may find opportunities to improve your credit score with a service like Credit Sesame.

Don’t Be Discouraged by a Poor Score

Don’t abandon the idea of a credit card if your score is fair or even poor. A secured credit card could serve as the bridge needed to get you from being denied to approved.

With secured cards, you pay for credit. You put up a security deposit, usually at least $200, and then a credit card issuer extends you the same amount in credit. This route lets you prove you’re worthy of more credit, and the lender has nothing to lose if you don’t pay your bill.

With enough on-time payments, you could get a credit limit and eventually be pre-approved for standard credit cards (more on secured credit cards in the next section).

2. Determine the Type of Card You Want

There are credit cards for every type of financial situation. While the number of credit cards out there may seem overwhelming and hard to count, they all broadly fall into five categories: credit-building, low-interest, balance-transfer, rewards and business.

Credit-Building Cards

These include the secured credit card mentioned above, as well as those intended for students and individuals who, for better or worse, haven’t established their credit yet.

The interest rates may be higher than average, and the credit lines may be modest, but cards intended to help build credit give account holders the opportunity to prove their creditworthiness.

Credit card issuers often extend credit line increases to account holders who keep their card usage low and make monthly payments consistently.

Low-Interest Cards

Typically requiring a credit score in the good-to-excellent range, low-interest cards are great for the long haul.

They offer highly competitive interest rates, potentially saving you hundreds or even thousands of dollars when compared to cards with higher interest rates.

Balance-Transfer Cards

These cards offer low-interest rates and may not charge you an annual fee, but only for an introductory period that’s usually 12 to 48 months long.

Use balance-transfer credit cards to pay off other credit card debt faster or to pay off a big purchase before the card’s normal balance-transfer rates and other fees kick in.

Rewards Cards

Who doesn’t love to rack up loyalty points or earn cash rewards? A rewards credit card can help you do just that.

You can earn miles to pay for airfare when you use airline rewards credit cards. You can get cash back on dining out with a dining card, or on gas with a gas card, and so on. You’ll need a score that’s at least in the fair-to-good range to qualify for this type of card.

3. Compare the Best Matches

Once you’ve figured out which type of credit card you want, and you know what you might qualify for, it’s time to compare your top choices head-to-head. And to do that, you’ll need to compare these key credit card features:

Annual percentage rate (APR)

This is the amount of interest you’ll pay on any balance on your card. The average APR in 2021 is around 16%, though rates could be as low as half of that figure or double (as high as 36%), depending on your credit profile.

Balance-Transfer Fees

This is the interest charge or flat fee you’ll have to pay if you want to transfer the balance from another credit card. Remember: Balance transfers to a low or no-interest credit card can help you pay down other credit cards quicker.

Late Fees

While you should always aim to pay your credit card bill on time, it’s still important to know how much dirt you’ll get shoveled with if you fall behind on payments. Beware, and don’t get buried in debt.

Rewards

Would you rather receive 2% or 5% of every $100 you put on your credit card? 2 times the airline miles or 4 times? Be sure to compare each card’s rewards, especially if all else is equal or comparable.

Sign-Up Bonuses

It’s another possible tiebreaker. Welcome offers are perks you get just for signing up. It could be a statement credit worth hundreds or dollars, or enough miles to pay for a domestic flight. Read through your options.

Annual Fees

This maintenance fee is charged every 12 months on many credit cards, but not every credit card will have one. They can range from about $30 to well over $100. However, you’ll come across many card offers that don’t include an annual fee for a set amount of time or include no fee at all.

Cash-Advance Fees

In case you ever need to get your hands on some cash in a hurry, and you don’t have enough on hand, you’ll need to know how much your credit card will charge you for borrowing cash. These are usually comparable to ATM fees, but some can be much more expensive.

Reporting

Not every credit card will report your on-time payment to the three major credit bureaus.

Foreign-Transaction Fees

Like to travel? Want peace of mind when you do? Be sure to review any potential card’s foreign transaction fee. It’s sort of like a cash-advance fee or ATM charge for making purchases in another country, and they can quickly pile up if you aren’t careful.

4. Apply for Your New Credit Card

After you’ve learned how to choose a credit card, reviewed your credit report and selected a few finalists, it’s time to apply for a credit card.

Use a reputable site like Credit Sesame to review options and apply, or go to the credit card on the company’s website. If you’re approved, you should get a response in a few minutes to a few hours.

If you aren’t approved, you should receive a written explanation in an email within a few business days or by mail, within a couple of weeks.

Did you get approved? Congratulations! Be sure to take care of your new account by keeping your usage no more than 30% of your credit limit — if you do that, you may qualify for a line increase down the road.

Keep in mind: applying for credit cards requires a hard inquiry into your credit report, which could cause your credit rating to take a mild or moderate temporary hit.