With such a glut of credit cards out there, each with its own unique fine print, rewards, and fees — it can feel overwhelming right out of the gate — to find the right one to meet your needs and wants.
But just like the slipper eventually found its way to Cinderella, the perfect card can find your wallet.
And once it does, trust us that it can quickly become the quietest, most lucrative sidekick you never thought you could have.
From building up or reestablishing your credit history, to amassing killer rewards — finding the right credit card and using it effectively could save you thousands of dollars.
Credit card debt in the United States has topped $1 trillion.
Hundreds of millions of Americans have some credit card debt.
But you don't have to be one of them.
Or if you already are, there is a tested road ahead to help you climb out of the hole.
The trick is not rushing out of the gate too fast.
With so many cards out there, it's crucial you narrow your search field off the bat and figure out what credit profile you fit in.
You might think shiny rewards will trump any hidden fees, but at the end of the day, the money is in the fine print.
Terminology like APR, balance transfer fees, and secured deposits might sound like corporate-speak.
But they're critical to grasp if you want to save time and guarantee you find the right card during your search.
That's why we've put together these sharp tips to help you best navigate the credit card market and find the card that will build your financial future.
1. To know your card, know yourself
A great way to start your search for credit cards is to think about how you'll use it.
We all have different financial needs and situations.
Maybe you're a recent college graduate looking to start building good credit, or a parent looking to gain rewards at the pump between carpooling and work commutes, or you're simply trying to find a good way to chip away at the debt you just can't seem to tackle.
There are three general types of credit cards. With that in mind, what type of credit card will work best for you? Here are three general types of credit cards:
- Credit cards that help improve your credit if it's limited or damaged
- Credit cards that save you money on interest
- Credit cards that earn you rewards
The best credit card for you will be the one that helps you address your financial needs best.
For example, if you rarely travel, a credit card that offers generous travel rewards might not do you any good.
Perhaps you already have some debt or are most concerned about building or rebuilding your credit; a low APR or balance transfer credit card might be in the cards.
But, if rewards are what you're after, take a look at Stacy Cowley's guide, writing for nytimes.com, behind some of the most widely recommended cards and the online tools that will help you decide which rewards credit card is best for you.
"As the economy strengthens, credit card issuers are rolling out their most lavish offers in years to woo new customers. But figuring out which card will deliver the best payoff for your personal spending patterns can feel like a calculus test."
2. Check your credit score and narrow the possibilities
Do you know your credit score?
If so, is that score more than four months old?
If you answered no to either of those questions, it's time to apply for a free credit report.
In fact, we consider it the number one most important thing to do before applying for any credit card.
Why? Well, when any lender (like a credit card issuer) considers you for its card, it will look at your credit report to assess how risky it will be to lend you money.
The higher your credit score the lower perceived risk (think high 600s or greater) you are.
That means if you know your own score, you can better guess if certain cards are within your reach.
Moreover, your report will tell you the main areas that are hurting your score, which makes it clear how best to shift your financial practices.
Most credit experts recommend staggering your reports by applying for one every four months.
To get your free copy of your credit report authorized by Federal law, visit the Annual Credit Report website to learn more and apply.
To apply, head over to our free credit check tool, or check out AnnualCreditReport.com.
3. Don't gut your emergency fund to afford a secured card
A secured credit card is typically catered to those with limited or poor credit.
That's because it requires a security deposit for approval.
Typically the amount of money that you deposit into the card is what your initial credit limit will be.
So, if you put down a deposit of $300, your initial credit limit will be $300.
With good behavior though, which pretty much means paying your bills on time and in full, many card issuers will allow you grow your limit by increasing your deposit.
In other words, add $100 after a month or two, for instance, and boost your credit limit by $100, and so on.
Maybe you're asking yourself: what's the upside to a secured credit card?
If you have poor or limited credit, a secured card is the safe and well-worn path to rebuilding your score.
There are surely low-score unsecured credit cards out there, but they most likely come with high potential fees and interest rates.
But there is at least one situation where you should hesitate on a secured card.
If you don't have an emergency fund, or would have to drain your emergency fund in order to afford all or most of the deposit, then getting a secured credit card is actually not that secure.
The reason being, if you end up in an emergency — say your daughter breaks her arm, or a tree falls on your car — dealing with the unexpected deductibles and out-of-pocket expenses might force you to max out another credit card or two.
4. Focus on pre-qualification offers for a quick and painless path to a new card
Any card you decide on will have an approval process. There are two main types of approval processes — ‘hard pulls' and ‘soft pulls'.
A hard pull or hard inquiry is when a credit company contacts any of the three major credit bureaus and requests your credit report.
A hard pull will ding your credit score, especially if you do it more than once over a short span of time.
The opposite then would be a soft pull — also known as pre-qualification — in which the inquiry doesn't affect your credit score at all.
Most credit companies websites will have a page you can go to and see whether or not you are pre-qualified.
Pre-qualification, if available, is a no-harm way to see where you stand in the eyes of credit card issuers.
In fact, it's probably one of the most underrated credit card perks out there.
That means if you're not sure what kind of card your score can get you, a great strategy is to focus in on the cards that offer pre-qualification.
That way you can get a painless and fast sense of how card issuers are judging your credit.
5. Use the 30/30 rule to tackle your debt and narrow your card search
If we go back up to look at the breakdown of how your FICO score is determined, we'll see that a full 30% of your credit score is calculated by credit utilization.
Credit utilization simply means how much credit you use in comparison to your credit limit.
So if your limit is $1,000 and you have a balance of $300, your credit utilization would be 30%.
FICO and the major credit bureaus see credit card users who get close to or max out their credit limits as higher risks than those who utilize a smaller percentage of their credit.
So, as a rule of thumb, you should keep your ratio below 30%.
That means if your total credit card limit (if you have more than one credit card, add up total credit limit from all credit cards) is $5,000, then your total credit card balance across all your cards should be around $1,500.
The 30/30 rule simply is a reminder that 30% of your credit score is the amount you owe (your credit utilization ratio), and the rule of thumb is to keep your ratio below 30%.
Paying down debt is pretty much an equally powerful credit score rebuilder as staying on top of your payments.
What that means practically is that when deciding on a credit card, understanding your means is way more important than any potential rewards program.
Will the annual fee put you in a bind?
Or will the high credit limit tempt you to spend more than you have?
Pay down your debt aggressively if you already have some.
And if you don't, pick the card with as many safeguards as possible to keep you smart.
There's no money saver and future maker as powerful as an "excellent" credit score.
6. Establish a budget
If you already have good to excellent credit, it might be time for a rewards credit card.
But picking the right one can still be a headache.
There are three of types of rewards programs to consider:
- miles — for travel
- points — for product purchases
- cash-back — for simple savings
For some people, it might be clear off-the-bat which type of program they want.
If so, great — check out these rewards credit card comparison guides.
For others though, perhaps you just want to maximize your savings.
If this is you, you need to build a detailed budget to figure out how you're spending your money.
A good start is a simple list of your income and expenses with categories to keep track of how much money is coming into your bank account, and more importantly, how much is going out.
But we're big fans of using digital tools to help streamline the process.
Check out an app like Mint, or any number of other options.
Once you have a better idea of where your big spending areas are, it will be easier to decide what type of rewards program is best.
7. Decide between rotating and fixed rewards categories
When it comes to cash-back rewards, often times card issuers will offer various percentages back for different categories — like 5% at the grocery, 3% at the gas station, and 1% on everything else.
Even with a budget, trying to do the math and determine which categories will bring you the most savings could feel dizzying.
To make it worse, some cards offer these categories as fixed, while others rotate the categories every few months and require you to opt-in.
If you're not a math wiz, a simpler way to eliminate a bunch of cards from the running is deciding which type of category option you would rather — fixed or rotating?
Answer these questions to determine which category type is right for you:
- Are you always on time to everything?
- Do you enjoy playing with preferences on online accounts?
- Would you consider yourself a flexible spender?
If you answered yes to the questions above, a rotating categories rewards card might be for you.
If you answer no, a fixed category card is a better bet.
8. Change your perspective and find the most rewarding APR
This one is for the consumer who is likely to carry a balance on their credit card — whether it be from an upcoming big purchase or a debt balance they're working to repay.
APR stands for annual percentage rate, and it tells you how much interest you'll pay on various types of transactions you might make with your card — from purchases, balance transfers, penalties, to cash advances.
Sounds unexciting right?
At least in comparison to miles and cash-back and points.
But the thing is, when it comes to picking the right card, "APR is one of the most important of those factors," as Jocelyn Baird writes for Next Advisor.
"Unfortunately, an awful lot of people don't know their credit card APR, as we discovered in a recent survey we conducted. Of the 504 men and women ages 18 to 29 we surveyed, nearly 40% didn't know their exact credit card APR.
"Even more worrisome, 57% of those respondents admitted to carrying a balance on one or more credit cards, which means they don't know what they're paying on those balances."
On the practical level of picking the best credit card for your needs, consider the type of card user you'll most likely be:
- Pay your bills in full every month and already have a healthy emergency fund? A big-rewards and high APR card might fit best since the interest rate will likely never hurt you.
- Climbing out of debt and leave a balance every month? Cards with low or introductory-offer APR are probably best.
Knowing how to exploit the APR to your advantage will save you hundreds, if not thousands of dollars, and protect or rebuild your credit score — simultaneously.
Is that not the best reward you could have imagined?
The perfect card is right around the corner
Hopefully, you feel a bit more sorted and clear-headed with your credit search now.
Here's a quick cheat sheet with the biggest takeaways from our guide of quick tips to comparing credit cards.
Establish a financial identity. With so many cards out there, you need to know yourself to narrow down the possibilities as to what card you should apply for.
Figure out how you spend and what your desires are with a credit card before diving in.
Check your credit score again. If you haven't checked in the last four months, it's time to apply for a credit report again.
The key to seeing how card issuers see you and to improving your score is by analyzing your report. Apply here for free.
Focus on the ‘soft pull' cards first. Targeting the cards that offer pre-qualification is a great way to ensure you don't hurt your credit during the search process.
Remember, unlike ‘hard pulls', when a card issuer does a ‘soft pull' it doesn't ding your score.
Choose between rotating or fixed rewards upfront. Some people love the customizability of rotating categories that some rewards cards offer.
Others would prefer the simplicity of fixed rewards system.
Choose one and narrow your search.
At the end of the day, we realize that there still so many cards out there — even once you narrow your search area to specific card features.
Do you have any quick tips that have helped you with your own credit card search?
Drop a comment below and let us know!