This is a tricky question. It is hard to decide what credit card to get. Why is that? Well, there are thousands of credit card providers around. Each credit card provider tells you that they are the best in the industry. They provide more benefits to you than their competitors. They paint themselves as angels from heaven who came to save you from your financial miseries. Are they really?
Think about this for a moment. Every bank offers credit cards. Every store offers credit cards. There are probably individuals who offer credit cards too. I am not sure. Whatever they are, it is up to us to decide which one we go with and why. Everywhere you go, they shovel credit cards in your face. Which one should you go with? Do you choose a credit card from a company because you know about it? Like a bank in your neighborhood? Maybe a supermarket where you buy your groceries every day?
Is your next door bank the best choice?
To answer these questions, we first need to evaluate your needs. Why do you need a credit card? Why can’t you use a debit card or use cash? They can all give you the same benefits. Right?
To proceed in our evaluation, we need to see possible reasons you probably need a credit card.
- Building you credit score (Can’t do it with debit cards)
- Convenience (Debit card can do it)
- Building your credit history (Can’t do it with Debit cards)
- Travel insurance (Debit card can do it, it depends)
- Theft protection (Debit cards offer protection)
- Rental and hotel reservation (Debit card can do it)
- Online shopping (Debit cards can do it)
- You can pay it off over time (Can’t do it with debit cards)
- Cash rewards (Can’t have them with debit cards)
- Discounts if you shop at some stores using their credit cards (Debit cards can’t do it)
- Etc.
You can see that there are a ton of reasons you might need a credit card. I agree with you. However, a debit card or cash can offer same solutions to almost all those reasons. There are few benefits of having a credit card over a debit card. In this article, we will discuss what you should consider before getting a credit card and what kind of credit card you should get. We will not talk about a specific name of a card or a company. However, we will talk about qualities a good credit card will have. Based, on these qualities and many more you will learn from other places (we encourage you to learn from other sources too), you will decide what credit card to go with and the company.
1. Building your credit
When you use a credit card, your activities get sent to the credit bureau. This helps you build your credit. Your credit score goes up or down depending on how you use your credit cards. In the long run, having this credit history will benefit you in terms of mortgages or loans applications from money lenders. However, regardless of the type of credit card you get, you will build your credit and improve or wreck your credit score. Therefore, you cannot decide what credit card to get based on this factor alone.
2. Convenience
I know, I know. It feels so good to just swipe you card. Back in days, people used to carry heavy bags full of cash. Those days are gone. Everything is on your fingertips and it feels great to walk around with thousands of dollars on a tiny little card. Should it get stolen? You will pay for any unauthorized transactions on your credit card. But, wait. Aren’t debit cards convenient too? Of course, they are. You will have the same level of convenience weather you use a credit card or a debit card. The only difference is that your debit card will allow you to only use the money you have in your account. This factor cannot be used when deciding what credit card to get.
3. Paying off your card debt over time
This is the most important reason people get credit cards. Trust me, people are broke out there. Allowing them to use the money they don’t have and let them pay it off over time is crucial to their success in life. It can also be a curse. Maybe they only need a mall amount to pay off their car and don’t want to go through loan applications, validations, and many more tedious processes. Can we use debit cards and pay them off over time? Unfortunately, not. A debit card only allows you to use the money you have in your account. You run out; you are done. Unless you deposit more money into your account, you cannot use your debit card. However, every credit card will offer this benefit. Therefore, this factor cannot be used when deciding what credit card to get.
4. Theft protection
What do you think will happen when people know that you are carrying $50,000 cash in your bag? You now what they will do! By using credit cards, we minimize thieves’ access to the money on it. Of course, they can steal your card and buy whatever they want. The good news is that credit card machines require a zip code especially whey you move outside of your zip code area. That is a little protection. Your credit card is safer than a bag full of cash. Anyone can grab your bag and run a way with it. So, you are safe a little bit with a credit card.
Isn’t your debit card safe too? Yeah, Yeah, Yeah. Your debit card is safe too (maybe safer). It helps you from carrying a lot cash and gives you more protection at the same time. Therefore, this factor cannot be used when deciding which credit card to get.
5. Rental and hotels reservations and online shopping
You can now reserve a hotel in another country on another continent! Damn! You are powerful. That is the power of credit cards. By having our information electronically, we can buy services anywhere in the world without living the comforts our couches. What about shopping online? We all know how it goes. You go on a website, find a product you like and click add to cart. Then you proceed with your payment’s options. Then you choose credit card. Voila! You just bought a product online without living your room.
Can’t a debit card to the same thing? Of course, yes. You can use a debit card to do the same thing. There might be other safer options to use other than credit cards. We all know about PayPal. You could be safer using papal for your online transaction than using a credit card. Most credit cards available can let you shop online. Therefore, this factor cannot be used when choosing the best credit card to get.
6. Travel insurances
I am talking about those who travel and fly to random places. You know where you go. If you missed your flights for some reasons that I don’t know about, you could get your money back. Of course, it will depend on the credit card you used to pay the ticket. Most of the time this works when you used the credit card from the company you are flying with.
Can you do this with a debit card? You could possibly buy a reimbursable ticket by using your debit card and if you missed your flight for some reasons you might be reimbursed. Keep in mind that these kind of assurances come at a cost. Therefore, this factor can be used when deciding what credit card to get. You will have to travel very often to make this factor a priority.
By now you might be asking: What factors should I use to help me decide a good credit card? Or What credit card should I get then?
The reasons I started with factors above is because many credit companies advertise their credit cards based on these factors. They tell you that you will be able to shop online, have reservations, theft protections, pay them off overtime, etc. But guess what, almost every credit card company offer these benefits and you can have most of them with a debit card. At this point, we know factors to discard when deciding our credit card. Next, we are going to see factors we should use to decide our next or first credit card. Choose a card that meets all or most of our criteria and many more you will learn.
1. Cash rewards
Think about this for a few seconds. You by products and your credit issuer gives you back a percentage of the money you spent. This is good news. All credit card companies do not offer the same percentage of cash rewards. This money is usually applied to your credit account and can be used to do whatever you want. Some of the products and services you get cash rewards on include but not limited to grocery shopping, gas, restaurants, etc.
Some companies offer rewards points instead of cash back rewards. Keep in mind that rewards points can only be used to buy products and services offered by the same company. For example, if you have an airline credit card, you can get flight points which you can use on your next flight ticket with the same company. This is a good thing. Your ticket will be cheap. Unfortunately, you are stuck with this company. What if you don’t what to fly with the same company next time and the other company cannot accept your reward points? It is up to you.
For you to maximize your cash rewards, look for the following:
- Focus on cards with the highest cash rewards percentage
- Focus on cards that offer rewards on diverse purchases not just groceries (you need to get money back on almost everything you spend your money on. This is the only way you can maximize you cash rewards)
- Avoid cards that you cannot get same percentage of rewards if you don’t use them with the same company (You don’t need a card from Walmart, another from target, Hugo’s, Walgreens, amazon, etc.).
- Avoid cards that you cannot use with other companies (remember, you don’t want to get stuck with the same company)
- Avoid cards that offer only rewards point (you might be stuck with your points in case you stop using the same company and your points cannot be transferred to the next company)
- Focus on companies that never reduce your cash rewards percentage over time
- You can choose specialty cards (choose the best credit card in regular shopping activities and the other on travel and restaurants, and so on)
- Use your credit card on every purchase that you get money back on (this means that you are getting your products at a discount because you will get some money back)
- Etc.
I define cash backs or cash rewards like this: I use money that is not mine and get paid for using it. For this definition to work, I have to pay off every penny I used before the due date.
2. Get cards with the highest credit line (credit limit)
From dictionary.com, a credit line is the maximum amount of credit that a customer of a store, bank, etc. is authorized to use. This might sound like I am trying to get you in more debt. One of my first credit cards I got had $500 credit line. It could not even pay my rent. Sometimes, I wondered why I got this card. The lower your credit line gets, the faster your credit usage percentage increases. From this article, we have seen that higher credit usage affect your credit score negatively. In my experience with that card, a grocery bill of $250 was wrecking my score. Why, you ask? Because that $250 is a 50% of my credit line. From that link I shared, using more than 30% of your credit line hurts your credit score very bad.
How much credit line to get? You will decide based on your needs and your ability to pay it off if you use it.
You don’t want to start with a card that will tank your credit score only after grocery shopping! Having higher credit line also helps you from getting a lot of credit cards. In my case, after my score tanked many times, I realized that I had to use at most $150 (30% of $500) from my credit line. That is just shopping once. You cannot even maximize your cash rewards if you can’t use the card. To fix the problem, I got more credit cards with more credit lines. A word of advice: stay away from cards with the lowest credit lines.
NOTE: I do recommend lower credit line cards to people who are new to credit card dilemmas. Credit cards are tempting, and you can get in trouble real quick. By having a card with a low credit line, you learn how to play the game without building up a huge debt.
3. Get Cards with 0% APR the first year or more and the lowest % APR rate after
This is where things get heated up. APR stands for Annual Percentage Rate. This is an interest charge applied to your loan, mortgage and credit cards, etc. Many credit companies offer few months to a year of 0% APR. Choose the one with the longest period of 0% APR. You will use the cards without paying interest charges on money you have not paid on time.
We know that there are cases when we cannot be able to pay off our credit usage on time. It is not the end of the world, but you will be charged a high percentage on the money you did not pay on time. The % APR on credit cards is among the highest in world of lending! These charges can be 15% or more depending on your card issuer. If you cannot pay your credit usage on time, at least you need to pay less interest charges on it.
Of, course, you need to pay off all your credit usage in full and on time all the time. This is a good habit to build your credit score and credit history in general.
4. Choose the card with highest sign-up bonuses and highest referral amount
That is true. Some credit card companies offer a sign-up bonus for new customers. If you are going to be paying some interest charges in the future, you might as well start collecting money from the company. They offer hundreds of dollars. So, choose the one with the highest sign-up bonus. They also pay you if you refer a person to them. You can make an income from them, if you have an unlimited number of people for referrals.
Bottom line
There are many factors out there that people use when deciding what credit card to get. All these factors are subjective. My reasons of getting a credit card could be different from yours. If you the only reason you need a credit card is to travel, you could focus on a card that offer the highest travel benefits. Those who are worried about their credit scores, can have a card with highest credit line, low % APR, etc. Or if you have a big purchase, you can go with a card with the highest possible credit line. It would be nice if you found a card that meets all our criteria. However, if you cannot find it, try one that checks many boxes.
Whatever reasons you are looking for a credit card, make sure that the one you choose has more pros than cons for the long run. Credit company deceive us with few direct benefits and block our views into the future. We get trapped with debts that we cannot payoff. Some people go bankrupt because of credit cards. Yeah, they are curses to some people. So, be careful when making your credit card decisions.
