5 Questions to Ask Yourself When Choosing a Credit Card


NEW YORK (MainStreet) — Credit card solicitations are a dime a dozen these days as issuers seek to widen their user base, but consumers should refrain from selecting a new product solely based on a seemingly good deal that pops up in their mailbox.

Thanks to the damage an inquiry or, perhaps more importantly, any misuse can do to your credit score, it’s a good idea to conduct a little research before applying for a new piece of plastic. Here are the five big questions you should ask yourself to find the card that’s right for you.

How good is your credit score?

Your credit score will determine whether you are approved for the card, as well as your interest rates and credit limit. Consumers can spare themselves an extra inquiry by sticking to products they know their score will qualify them for.

For instance, those with bad credit – or no credit –will probably need to apply for a secured card, which minimizes the risk of default by requiring that applicants make a down payment upfront that will match the card’s line of credit, before graduating to a traditional line of credit.
Those with great credit, on the other hand, will want to go after a card that offers either the lowest annual percentage rate or features a competitive rewards program, depending on how you’re planning to use the card. You can check out this MainStreet article for more information on what scores qualify as good.

Do you plan on carrying a balance?

If you don’t think you can pay your balance in full each month, the APRs associated with the cards you’re considering should be the driving factor behind which one winds up in your wallet.

This is because any dollars, frequent-flier miles or experiential rewards earned while using the card will be rendered moot if you’re paying interest on your purchases. (As MainStreet has previously reported, rewards cards tend to have higher interest rates associated with them so issuers can foot the bill on all the points they are paying out.) Currently, the average APRs rest at a fairly high 14.71%, but some low-interest credit cards, like the Visa (Stock Quote: V) First Simmons Platinum, offer rates as low as 7.25%.

Are you already carrying debt?

Those carrying a high balance on an existing credit card should probably refrain from adding to their credit card arsenal … unless, of course, they’re taking an issuer up on a great balance-transfer offer.

As MainStreet has previously reported, balance transfer cards allow consumers to move high interest debt they carry on existing credit cards to a new one that charges little to no interest, at least for an introductory period. Competitive introductory periods, which can also be on purchases, typically last anywhere from 15 months to two years, but consumers will want to make sure the card will carry a low APR once the period elapses. They should also make sure the card doesn’t carry a high balance transfer fee, which can range between 3% and 5% of the debt you are moving over.

You can find details on some of the better balance transfers cards out there in this MainStreet roundup.

Will you use the rewards?

In addition to higher interest rates, many rewards cards also carry annual fees (another way issuers can recoup the costs associated with its benefits), so those looking for a card with benefits shouldn’t necessarily sign up for a swanky one just because their credit score qualifies them for it.

The American Express  (Stock Quote: AXP) Platinum Rewards Card, for instance, is great for affluent, globe-trotting customers who will use the exclusive hotel and resort upgrades, VIP access, travel insurance and $200 airline fee credit it affords them. But it’s definitely not the card for a consumer whose infrequent flying doesn’t justify its $450 annual fee. That particular consumer may be better off signing up for Amex’s  Blue Cash Everyday Card, which has no annual fee but still nets cardholders 3% back at supermarkets, 2% back at gas stations and departments and 1% back on other purchases made during the entire year.

Which spending category do you put most of your dollars toward?

Of course, getting the most return on your buck means looking at more than just a card’s annual fee. While rewards cards in the past focused largely on travel perks, offerings have become so varied during the past few years as issuers strive to remain competitive that savvy consumers will want to take a look at their personal spending habits.

Foodies, for instance, can benefit from a card like Citi Forward, which rewards cardholders with five ThankYou points for every $1 they spend on restaurants and entertainment. Meanwhile, SUV owners may want to consider a card like PenFed Platinum Cashback Rewards, which offers 5% cash back on gas purchases.

Credit card searches also warrant a careful reading on the fine print. Find out what to be on the lookout for in MainStreet’s roundup of seven terms that kill a credit card deal.

—Jeanine Skowronski is staff reporter for MainStreet. You can reach her by email at Skowronski.jeanine@thestreet.com, or follow her on Twitter at @JeanineSko.

Show Comments

Back to Top