How to Get a Credit Card That Will Maximize Savings
With well over 1,000 credit cards on the market, advertisements bombarding us online, on TV and through the mail, and mountains of fine print to confuse us, it can be understandably difficult to find the right credit card. It’s a worthwhile endeavor, however, given how financially beneficial a complementary credit card can be and how it can help you avoid some of the biggest mistakes that credit card users make.
Credit card use is a responsibility, after all. Credit cards report information to the major credit bureaus on a monthly basis. If this information is positive, reflecting responsible use or even zero balance, your credit standing will gradually rise, helping you qualify for attractive loan and credit card rates in the future as well as making it easier to rent an apartment, lease a new car, or be eligible for certain jobs. If, however, the information reflects misuse – such as missed payments or high credit utilization – it could lead to expensive debt, credit score damage and assorted other difficulties across your life.
So, it is imperative that you not only take the time to identify, apply for and open the proper credit card, but also that you learn how to use it responsibly. If you are looking for a quick and interactive experience in identifying the right card, let us recommend that you use our step-by-step credit card advisor. On the other hand, if you are interested in a more detailed explanation, please check out our step-by-step instructions below.
Step 1: Determine Your Credit Standing
The approval criteria for any given credit card are based on the applicant’s disposable income and credit standing (i.e. their credit history, the information in their major credit reports). Issuers want to know that you have the money to pay your bill – at least the minimum amount each month – as well as the track record of responsibility to show that you will spend within your means and pay on time each month.
Getting a sense of your credit standing is therefore imperative to narrowing down your credit card search. You can do so using WalletHub’s Free Credit Estimator, by evaluating your situation qualitatively, or by checking your credit score. Once you have your answer, you will be able to sort credit card offers based on the required credit standing.
Step 2: Identify Your Main Need
Credit card offers are neither perfect, nor interchangeable. In other words, there is no magical card that offers the best terms across the board. Some cards offer lucrative rewards, others low rates or fees. It’s therefore important to prioritize your needs in order to focus on the most beneficial offers.
With that in mind, the following tips will tell you what to focus on based on your current situation and objectives.
- If you have bad, limited or no credit: Focus on identifying a card that A) will approve you and B) has the lowest possible annual fee. This will enable you to build credit cost-effectively. In many cases, the best option will be a secured credit card since approval is guaranteed and fixed costs are kept in check by a refundable security deposit. You can then add to your security deposit over time in order to increase your available credit and speed up the credit building process.
- If you’re a student: Students should prioritize student-branded credit cards with no annual fee. They tend to offer better terms than a student’s credit standing would ordinarily allow given the youth and earning potential of college students. When it comes to choosing between no annual fee student credit cards, those who pay their bill in full every month should focus on rewards, while those who don’t should concentrate on rates.
- If you have above-average credit & an existing balance: Consumers with established credit may be able to reduce the cost of their debt and pay it off sooner if they can qualify for a balance transfer card with a long enough low interest introductory term and a balance transfer fee that isn’t too prohibitive. The better your credit is, the better your balance transfer credit card is likely to be.
- If you have above-average credit & need a financing vehicle: People who either don’t pay their bill in full every month or those who are planning a big-ticket purchase that will take a few months to pay off should focus on credit cards that provide low introductory financing offers on new purchases. Just make sure to consult a credit card calculator in order to plan your payments when using such a card as well as to avoid retailer-affiliated offers that have a deferred interest feature.
- If you have above-average credit & always pay your bill in full: These are the lucky people who can focus on rewards, since they don’t have to worry about minimizing the cost of debt and the available rewards will actually be worthwhile. The best approach to choosing a rewards card is to determine which offer will benefit you most in light of your spending habits. For example, if you hardly ever travel, a card offering a high cash back earning rate across all purchases will likely prove to be more lucrative than an airline miles card.
- If you’re a small business owner: Small business owners have two types of credit cards to look for: a business rewards card for everyday spending and a 0% consumer card for financing purposes. Business rewards cards are known for their lucrative perks in business-specific spending categories as well as their helpful expense tracking features. 0% consumer cards negate finance charges and provide CARD Act protection.
You might be thinking – what if I have more than one need? If you have above-average credit and you feel that you fit into more than one of the categories above (e.g. you want to finance a big-ticket expense while also earning rewards on everyday expenses), then it is recommended that you maintain separate accounts for each of your needs. This is actually called the Island Approach. If you have average or below-average credit, it’s best not to complicate things in such a manner – especially since it may be difficult or costly to open another card.
Step 3: Compare Options
Online comparison tools have made it much easier to find the right credit card. When searching for a card that meets your particular needs, you can simply use the filters on the left side of our main Credit Cards page or peruse our Editor’s Best pages for offers that have been recognized for their excellence. Even if you’re just looking into an offer you heard about on TV or received a direct mailing about, it’s still worthwhile to check online to see how it stacks up against the competition.
When comparing offers, make sure not to get hung up in factors that don’t really matter – like the interest rate on a rewards credit card. Focus instead on the terms that you have prioritized based on your needs.
Step 4: Apply & Open Your Account
There are a variety of ways that you can submit a credit card application – including online, via paper application or over the phone. The method you employ is ultimately up to you. There is really no difference between the options, save for the fact that an online application will probably be a bit quicker.
For more information about the application process, check out WalletHub’s guide on How to Apply for a Credit Card.
If you application is approved, you should receive your new card within 14 days. Just remember to activate the plastic when you receive it, set up monthly auto-pay from your checking account and register for online access. Then, use your card responsibly and reap only the benefits of credit card use.
- Every Offer Needs Context: Credit card offers cannot be evaluated in a vacuum. After all, you have no way of knowing if an offer is any good or not if you don’t know how it stacks up against the competition. A card offering 2% across all purchases is great compared to offers providing 1%, yet no so hot in relation to those shelling out 5%. You should therefore compare any offer you receive in the mail or hear about on TV to the rest of the market.
- Be Realistic: It’s wise to neither apply for a credit card that’s out of your league nor trick yourself into believing that long-held habits will change once you get a new card. Instead, stay in your lane and apply for a card that will suit your recent spending and payment habits.
- Don’t Put Blind Faith in a List: Just because someone touts the benefit of a credit card does not make it good. The person making that determination might not know what they’re talking about, or their rankings list could be out of date. The point is you can never really know until you look into things yourself.
- Don’t Submit Mass Applications: Applying en masse is not a simple way to improve your odds of approval. Rather, it is a great way to show issuers that you are desperate for credit (not a good sign) as well as to damage your credit standing. So, if you don’t get approved for the first two cards you apply for, give some serious thought to placing a security deposit on a secured credit card.
- Don’t Be Afraid of an Annual Fee: Many consumers will immediately disregard a given credit card offer just because it has an annual fee. That is a mistake. Annual fees are often the price you have to pay to get the best possible rewards. And a card with exceptional rewards and an annual fee can easily wind up being more lucrative than a card with no fee and less attractive rewards. It all depends on the user’s spending habits.
- Have an Exit Strategy: Credit cards will often waive their annual fee during the first year your account is open, enabling you to earn a lucrative rewards bonus or benefit from some free credit building during that time. If the addition of the annual fee will change that card’s value proposition considerably, then perhaps you’ll want to set a calendar reminder to close your account before your dues come due.
- Ask for Reconsideration: A lot of people don’t know this, but if you don’t get approved for a credit card, you can ask the issuer to review you application a second time. This is known as a reconsideration request, and it can be worthwhile if you believe you were rejected unnecessarily. You can read more on this topic in our reconsideration request guide.
Image: Santiago Cornejo/Shutterstock
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