Researching the credit card market can get dizzying quickly.
Every card seems to come with a different perk and pitfall — points, miles, store rewards, high APRs, introductory fees, grace periods.
Trying to keep all the numbers and finance charges straight as you determine how one card stacks up to another can start to feel like you're back in math class.
We're here to tell you it doesn't have to! The trick to comparing credit cards is coming at it from a different angle.
Instead of trying to find the best card off the bat, your first step should be understanding your own financial identity.
As Anita Shargall writes for Money Super Market, "[t]he best card for you depends on… how you intend to use the card."
Sounds simple right?
That means a lot of people are signing up for the wrong card or they're using their cards wrong.
For instance, rewards cards often come with enticing offers like double miles and triple points on all purchases.
But if you leave a balance on the card at the end of the month, those rewards will be canceled out by the high-interest rate that kicks in.
Don't sweat though.
With this guide, we'll walk you through the four main types of cards — rewards, low interest, balance transfer, and secured.
By the end, you should be confident about the type of credit card you need so you can dive into the comparison research to suss out any credit card offer that you find.
Here's everything you need to know to compare credit cards and pick the right one for your needs:
Know these 6 credit card terms to help you assess any card that comes your way
There's a lot of factors to consider when researching credit cards.
The language is often weird, confusing, and difficult to understand without a guide.
Below we've put together some of the important terms to know as you dive into your credit card search.
Exploit the grace period to your advantage. This is the period between the end of your billing cycle (i.e. the "statement date") and the day your payment is due.
It typically lasts three weeks, during which the card issuer will not charge you interest on your purchases made during the last billing cycle.
The catch is that the grace period is all or nothing — that is, if you don't pay your balance off in full, the no-interest grace period is canceled and the APR kicks in.
Not only do you need to pay your balance off each month, but you should keep an eye on the timeframe of that grace period so you aren't charged interest.
Don't shun the Annual Percentage (interest) Rate (APR). For credit cards, the APR and interest rate are the same thing and is the rate charged on your credit card balance when that balance is not paid in full.
Again, interest rates will range depending on the card, but typically, secured and unsecured credit cards (more on these in the next section!) for bad credit have higher rates.
An easy way to avoid paying interest is by paying your balance off in full each month.
If you're interested in figuring out how various APRs will affect your specific financial condition — considering your available income and money habits — David Ringstrom over at AccountingWeb put together a really helpful tutorial to help you set up a basic Excel spreadsheet with all the necessary financial functions.
Determine the finance charges to see the big picture. Often confused with the APR, finance charges also describe costs lenders impose on borrowers.
These charges are comprised of commitment fees, interest and the annual percentage. Essentially, the finance charges are all fees accrued from the card.
Practically, that means if you do everything right — i.e. paying your bills on-time and following all the rules in the fine print — your finance charge will equal your APR fee.
But, if for instance, you're late on a payment, go over your limit, or take out a cash advance, you could be hit with a late fee.
Depending on the card, you could also face an over-the-limit fee or cash advance fee — all of which would be added to your total finance charge.
Don't jump head over heels for a shiny introductory offer. Many cards offer introductory offers that waive a fee, reduce the interest you'll pay, or reward you with X if you spend Y dollars in the first few months.
These offers are enticing but not worth it simply because they exist.
Make sure you read the fine print and pay attention to what happens when the introductory offer ends, and that you can stick to the requirements.
Otherwise, you might get hit with hidden fees and rates you didn't see at first glance.
Grow a bigger credit limit only if you actually need it. The initial credit limit refers to the amount of credit you'll be extended when you open an account.
If you have bad credit, you'll probably have a lower line of credit ($500 or less).
However, being responsible with your card may allow you to extend your credit limit (for free on an unsecured card or for an additional deposit with a secured card).
Only put down a security deposit if you have an emergency fund. Unsecured cards won't require a security deposit, but secured cards will require one.
Depending on your qualifications and the specific card, you may be able to put down a couple of hundred dollars to a couple of thousand.
This is money you'll need to pay upfront though so make sure you're ready for that cost.
In some cases, credit issuers will refund your deposit after some months of responsible use, while others might even let you accumulate interest on the deposit while they hold onto it.
Make sure you read all the fine print related to the deposit before you apply.
Rewards cards are the cream of the crop and for those already with excellent credit
At the end of your credit card journey, the goal is to settle down with a top-of-the-line rewards credit card.
That being said, there's a reason they're at the top and might still be out of reach if you're just beginning your credit card search.
How it works
As the name implies, this card earns you rewards on your purchases.
There are three main types of rewards programs:
- cash back
- and miles
These rewards cards will reward you based on how much you spend filling up at the pump, buying groceries, eating out, drinking, shopping and traveling.
Really anywhere you spend money, there's likely a card out there with a program that suits your needs
What's the catch
Many rewards credit cards (though not all) come with introductory offers that require you spend up to a few thousand dollars in the first few months in order to qualify for the introductory offer.
Plus, many of these cards come with sizable annual fees and high APRs.
That means if you aren't able to take advantage of the introductory offer and/or can't pay your balance off in full each month, the rewards will likely be canceled out by the accrued interest.
Will I end up spending more to chase the sign-up bonus?
To answer this question, you need to nail down your own income and expenses by making a budget.
Once you understand your cash flow — say you spend $1,000 per month after rent — then you can more clearly see that, say, a $4,000 spend requirement in the first three months isn't worth it.
"Typical rewards have a value of 1 percent of what you spend, while credit card interest rates average 13.49 percent (and rewards cards are usually higher), so additional spending could easily cost more than the rewards you earn," according to Richard Barrington of Clark.com.
Who Should Apply
Rewards cards are typically not entry level cards.
The best ones require excellent established credit (700+) and aren't worth your while unless you can spend enough to cancel out the annual fee and other connected finance charges.
Answer these questions to figure out if a rewards card is right for you:
- Do you travel a lot?
- Are you a big spender?
- Do you pay off your balance in full each month?
- Is your credit in "good" or "excellent" condition?
If you've answered yes to the majority of the questions above, then it's probably time for a rewards credit card.
Considering the information above, answer these questions to figure out if a rewards credit card is the right choice for you:
- Do you travel a lot?
- Do you have a healthy credit history and FICO credit score above 700?
- Can your expenses naturally cover the sign-up bonus requirements?
If you've answered yes to the above, it's likely about time for a rewards credit.
Where to Look Next
The next step is figuring out what kind of rewards card you should look for.
If you travel a lot, Mara Sofferin, writing for Travel and Leisure, suggests asking yourself what you want your card to help you achieve.
- "Do you have a destination in mind?
- Do you want free flights? A free hotel stay?
- Or, perhaps you want freebies in the form of museum tickets and Michelin star meals?"
If you answered yes, you should check out cash-back or points cards.
These next two card types — low-interest (also known as low-APR) and balance-transfer (chapter 4) credit cards — can easily be mistaken as the same thing.
While both have to do with debt and APR, balance transfer credit cards offer a limited-time 0% APR offer to help shift a balance from a high-interest card.
On the other hand, a low-interest card typically offers lower-than-average APR for someone who anticipates keeping a balance in the future.
How it works
APR is the annual percentage rate or interest rate that kicks in when you only pay the minimum and leave a balance on your credit card.
While it's always advisable to pay off your balance in full each month, sometimes life gets in the way — whether it be a family emergency, big purchase, lost job, or something else.
A low-interest credit card can help you mitigate the damage because instead of paying an average or high APR over 15%, you'll pay an APR in the single digits, sometimes as low as 0%.
In the long run, this can save you hundreds if not thousands of dollars.
What's The Catch
While the low APR is ongoing for most cards, it's not infinite.
Typically it's part of an introductory offer — often a year or slightly longer.
That's nothing to complain about but it's crucial you plan out your payments because if you still have a balance after the introductory offer ends, the regular APR kicks in and can drain your wallet fast.
How Much Can I Actually Save?
Potentially hundreds of dollars.
Say that your total credit card balance is $1,000, with a minimum payment of $100. Of that balance, $500 is accumulating 15% interest, and the other half has an interest of 24%.
(Remember there are different APRs for different types of transactions, including purchase, penalty, balance, and cash advance.)
If you write a check for $500 to your bank as payment, $100 will go towards paying the 15% balance, while the other $400 will pay down the 24% balance.
Fundamentally, the way to avoid these big interest bills is to always pay your balance off in full every month.
Who Should Apply
If you anticipate debt headed in your direction, a low-interest credit card is great to keep your additional costs low while you slowly pay off the balance.
For instance, let's say you just landed a new job but you need to get a car now to commute the longer distance to work.
If you don't have the funds upfront to pay, say, $10,000 for a car, using a low-interest card is a great option to help reduce or even completely negate the accrued interest you'll pay on the balance.
Let's say the card you use has a 0% APR introductory offer for the first 12 months. As Katrina Gutierrez points out for Get.com, "If you pay off the balance in full before then, you basically get an interest-free loan."
Considering all the above information, answer these questions to figure out if a low-interest credit card is the right choice for you:
- Do you find yourself only paying off the minimum on your credit card balance?
- Is your credit in the "good" to "excellent" range?
- Are you anticipating a big purchase in the near future or disruption to your income?
If you've answered yes to the questions above, then a low-interest credit card might be the right choice for your credit needs.
Where to Look Next
The next step is figuring out the cost of the purchase that you're going to make, and how long it will take you to pay off.
It's important to give yourself a slight buffer — say a month or even two if possible — and then pick a card with a low introductory APR that fits your payment plan.
Balance transfer cards help keep costs down while shifting debt from one card to another.
These are probably the riskiest type of credit card and require the most research to ensure you don't end up with a card that hits you with a crazy high-interest rate once the introductory period ends.
How It Works
A balance transfer credit card offers a low introductory offer balance transfer APR.
This is the interest rate that kicks in when you try to shift a credit card balance from a card with a higher APR to one with a lower one.
This rate can be a one-time fee — typically up to 5% — and lasts for a period 6-21 months.
What's The Catch
Melanie Penola, writing for Lifehacker, says reading the fine print could mean the difference between saving versus losing more.
"Remember also that if you are late on a single payment, you could lose the promotional rate and end up being charged the full higher rate.
You'll want to read the fine print on any offer to make sure you know when exactly the rates will change and what fees you can expect."
You should also check if there's also a balance transfer flat fee — typically $5-10 — that kicks in if the APR percentage doesn't meet the minimum.
The Question Everyone Is Asking
Should I apply for a balance transfer credit card?
In short, yes, but only if you're certain you can pay down the balance within the introductory offer time period.
And even then, it's crucial to calculate a pillow into your payment schedule just in case of an emergency.
The experts over at Investopedia have a strict checklist of requirements for considering a balance transfer credit card.
"If you are able to find a new credit card with a very low-interest rate, little or no balance transfer fee, a credit limit high enough to accommodate your previous balance and an introductory period long enough to pay off the balance before the rate increases, then a balance transfer is a good idea for paying off your debt."
Who Should Apply
A balance transfer credit card is for those already carrying a lot of credit card debt.
Perhaps you have a credit card charging you an APR upwards of 15% on the said balance.
A balance transfer credit card will allow you to transfer that balance to a new card and pay a smaller interest rate on that balance for a set amount of time.
Typically, you need a good credit score, above 650, to qualify for a balance transfer card.
Considering all the information above, answer these questions to figure out if a balance transfer credit card is the right choice for you:
- Are you carrying a balance on a high-interest credit card (>20%)?
- Can you not afford to pay down your entire balance right now?
- Have you not applied for a credit card in the last 8-12 months?
If you've answered yes to the questions above, a smart balance transfer credit card might be the right choice for you.
Where To Look Next
The market for balance transfer cards is smaller than most, which will make it easier to figure out the best cards for your needs.
The key step to take before you start digging into the ins-and-outs of specific cards is creating a realistic payment plan for the balance you already have.
How much will you be able to pay off each month, considering your ongoing expenses?
How many months will it take to pay off your balance in full?
Once you have those two data points down, you can better figure out which card fits your needs.
Don't forget to add the balance transfer fee to your payment plan to make sure you don't underestimate the amount of time it will take you to pay down your debt.
Secured cards require an upfront deposit and are for those with poor credit.
The single, big difference between a secured credit card and all the credit cards above is that it requires an upfront deposit.
This deposit — typically a few hundred dollars — acts as collateral for the credit card issuer, who might be worried about your credit history.
How It Works
If you don't pay your bills, the issuer has the deposit in-hand as insurance.
If all goes well though, at the end of the initial term on the card (typically a year), you'll receive your deposit back and hopefully be eligible to graduate to an unsecured card, like a rewards card mentioned above.
What's The Catch
The deposit you put down typically equals the credit limit — or the amount you can spend each month — that you'll be approved for.
So if you put down $300, your credit limit will be $300.
That means unless you have a lot of cash savings, getting approved for a high credit limit will be difficult to start.
Thankfully, many cards allow you to grow your credit limit month-to-month by adding to your deposit.
The Question Everyone Is Asking
Can I earn interest on my deposit?
Most issuers will simply hold onto the deposit and return it at the end of the term.
Though there are some exceptions.
Some credit unions, like USAA, offer secured credit cards that will accrue some interest — don't expect to get rich though!
The experts over at Credit Card for Bad Credit recommend finding out all the terms related to the deposit so you aren't surprised in a few months.
"Don't forget to ask how long you must leave the money in the account after it has been closed. Sometimes, there are a few charges after the account is closed, and the company will want to ensure that there is money in the account to cover these charges."
Who Should Apply
Secured credit cards are geared specifically toward people with poor credit.
That means if you're just starting to build back your credit and don't qualify for a decent unsecured credit card, a secured card is your best bet.
Still, keep in mind that you shouldn't drain your savings in order to pay the deposit.
Without an emergency savings fund, even if you do everything right and pay all your bills on time, an unforeseen emergency can force you to max out another card and leave you with worse credit than when you started. If you can't afford
Considering the above information, answer these questions to figure out if a secured credit card is the right choice for you:
- Do you have poor credit?
- Can you afford the security deposit without draining your emergency fund?
- Is there no unsecured card with decent rates and fees that you pre-qualify for?
- Are you looking for a safe and sure way to rebuild your credit?
If you've answered yes, then a secured credit is likely the perfect fit for your financial needs.
Where To Look Next
To start researching secured cards, you'll want to focus primarily, though not exclusively, on the fine print surrounding the deposit.
Some card issuers actually offer interest savings options on your deposit.
Others limit the amount you can add to the deposit to help grow your credit limit. Still, don't discount the APR and fees related to the card either.
Pick the best card for your needs, not the one that will show up in your mailbox tomorrow!
A credit card is not a one-time purchase. It's a long-term investment and should be treated as such.
You might be desperate for a credit line for any number of reasons, but it's never a good idea to apply for a card simply because the issuer says you can start using it right away.
Before we finish up, here's a cheat sheet with the biggest takeaways from the comparison guide:
Apply while it's calm, so you have it when the storm blows in. Most cards can take anywhere from one to two weeks to show up in your mailbox, sometimes even longer.
The smartest strategy is to get ahead of your future finances and apply for a card before you urgently need it.
Don't get blinded by that shiny introductory offer. Hundreds of dollars in rewards or double points sounds way too good to pass over.
But take a breath.
There are likely requirements attached to those rewards or a trade-off with a high APR or hidden fee.
Picking the right credit limits means making a budget. Your credit limit should be consistent with your expenditures.
If it's too high, you might be tempted to spend over your means; too low and you could blow your credit utilization ratio.
Do you have any experience with any of the card types above?
A nightmare balance transfer story?
A low score credit card that helped rebuild your life?
Leave a comment with your story below.