Best Credit Cards (for You) – How to Choose a Credit Card

A credit card can be a useful tool or it can be a dangerous weapon. Most of this depends on you — the best credit card in the world won't help if you spend beyond your means. American adults carry thousands of dollars in average credit card debt. I lived a decade mired in it and I don't recommend it to anyone.

If you're responsible, however, a credit card can be both convenient and efficient. In the first part of this series, I noted that I save 1% on my utilities by paying with my cash-back credit card. These are expenditures I'd make anyhow, but the card saves me money. (As a bonus, using the credit card helps with my quest for a paperless personal finance system.)

But there are hundreds (thousands?) of different credit cards to choose from. You can compare each card against the average credit card rates, but beyond that how can you tell which is best?

How to choose a credit card When readers have asked me for credit card recommendations in the past. I've always declined. First, I'm still not completely convinced that credit cards are a good idea. Second, I don't have the resources to judge which cards are best. I do know, however, that it's important to choose the right card for your lifestyle:

• If you are are someone who revolves a balance credit card debt, focus on cards that offer low interest rates (especially on balance transfers) — and put a stop to new charges.
• If you pay your balance in full every month, find a cash back credit card with no annual fees and a solid cash rewards program.
• Some credit card users have special needs. If you spend a lot on gas, consider a gas credit card that gives added rewards on auto expenses. If you travel a lot, look for a card with rewards for flights and lodging.

When choosing a credit card, Money magazine recommends you pay special attention to the Schumer Box, a prominent table in every credit card application. In general it's important that you understand the different aspects of the credit card application. Look for:

• An annual percentage rate of 11% or less on purchases.
• Low rates on other loans, such as cash advances or balance transfers. (If you're doing a balance transfer, find a card that offers 0% APR, at least for a year.)
• Reasonable penalty terms. Find the penalty rate (or default rate), and follow the asterisk to see what triggers it.
• Finance charges that are not computed using two-cycle billing. (Two-cycle billing sucks.)
• No annual fee.

Don't choose a card just because it offers a signup bonus or because it gives you a discount at your favorite store. Read the terms and conditions. Understand the card's limitations. Remember: your goal is to pick a tool, like a vacuum cleaner. You're not looking for a one-time bonus, but a long-term relationship you can live with.

The Best Credit Cards Consumer Reports wrote an article about using credit cards sensibly without falling prey to their traps.

The folks at CardRatings.com have compiled a list of the best credit cards in the table below, representing their top picks for the best credit card offers on the market today. The CardRatings editor, Curtis Arnold, has also provided his rating for the cards.

Below the table, the CardRatings research staff provide their top picks for the best credit card offers for 2012 by category, breaking out many of the card details so you can compare things like interest rates, bonus rewards and balance transfer promotions on the best credit cards out there.

Best Low Interest Rate Cards If you're more interested in a rock-bottom interest rate than cash back, merchandise, or travel, here are some of the very best low-interest rate credit cards available. The first two are based on straight APRs, the last three are based on introductory rates for new accounts only:

• Iberia Bank Visa Classic. This credit card issuer was one of the first in the industry to get rid of over-limit fees. The interest rates on this card are also one of the lowest in the industry.
• Simmons First Visa Platinum. This bank (actually a collection of Arkansas community banks) has one of the lowest APRs in the industry.
• USAA Rate Advantage. The as-low-as 6.9% APR makes this a great card for consumers with excellent credit. And, the legendary customer service USAA is known for is a nice bonus.
• Discover More Card. Discover More Card offers an 0% introductory balance transfer APR for 18 months and after introductory rate expires rates are as low as 10.99%.
• Slate from Chase. This no-frills credit card offers a no-fee balance transfer for 15 months at 0%. Slate also comes with Chase's Blueprint system to help you manage your spending.

Best Cash Back Cards You can't beat cold hard cash, no matter what the state of the economy. Here are the top credit cards that offer the best percentage cash back deals:

• Fidelity Investment Rewards American Express. This cash back credit card that deposits 2% of your purchases into your linked account at Fidelity.
• Capital One Cash. Card holders receive 1% cash back on all purchases, plus a 50% annual bonus on all cash back earned for a total of 1.5% cash back on all purchases. This card also offers a one time $100 bonus after you spend $500 in the first 3 months.
• Blue Cash Everyday Card from American Express. The "Everyday" cash back card offers a 1 percent rebate on all purchases, with double rewards at gas stations and triple rewards at super markets. Earn $100 cash back after spending $1,000 in eligible purchases in the first 3 months of Cardmembership. 0% intro APR on purchases for 12 months, flexibility to pay over time. NO spend minimum, NO enrollment, and NO rotating rewards categories. Get a $25 Referral Bonus for each friend or family member who is approved for the Card. No annual fee.

Best Travel Miles Cards If accumulating travel miles to a trip to Europe or anywhere else in the world is a better incentive for you than cash, try these cards:

• Capital One Venture Rewards. The Venture card allows you to earn 2 miles per dollar on every purchase and offers total flexibility. It also offers new card holders 10,000 bonus miles after $1,000 in purchases in the first 3 months. There is a $59 annual fee which is waived for the first year.
• PenFed Premium Travel Rewards American Express Card. This flexible travel rewards card offers a low APR and no foreign transaction fee. The card's 5 points per dollar on airfare purchases is one of the best travel rewards programs around.
• Chase Sapphire Preferred Card. Chase is currently offering 50,000 bonus points (worth $625 toward airfare or hotel accommodations) after you spend $3,000 in the first 3 months as well as double points on travel and dining. They also recently dropped the foreign transaction fee. There is a $95 annual fee which is waived for the first year

Best Reward Points Cards If you'd rather not have your points limited to airline travel, try these cards:

• Fidelity Investment Rewards Visa Signature card. Card members get 1.5 points for every dollar they spend on the first $15,000 in purchases per year, and 2 points per $1 in purchases thereafter. The redemption system is online and easy to negotiate: you can convert 5,000 points into a $50 deposit to qualifying Fidelity brokerage accounts. But if you would rather spend the cash on something more frivolous than your retirement, you have that option too--there's a list of travel and luxury retail rewards as well. And there's no hurry to redeem the points; you can take up to five years to turn them in.
• Amazon Visa. The Amazon Visa can earn as much as 3 points on your online shopping sprees on Amazon.com and pay with reward points at checkout.

Best "Bad / No Credit" Credit Cards These are not the old subprime lenders of pre-crash era; the new poor/fair credit card lenders are both financially sound and ethical:

• USAASecured American Express.If you or a family member served in the military, you can get the full benefits of an American Express card secured by an interest-earning CD,for a low annual fee.
• Citi Secured MasterCard. This secured MasterCard is one of the better "no credit" credit cards. While most secured credit cards require a deposit in a statement savings account (which earns little to no interest), Citigroup instead asks card holders to use an 18-month certificate of deposit that gets better interest than a savings account. There is a low annual fee, but this card can be used to not only rebuild credit, but also earn some money. At the end of the 18 months, if you have paid your credit card on time every month, you can get an upgrade to a traditional unsecured card.

Most Innovative Credit Card. Capital One gets kudos from us for being straight forward, using clear language on its website and in monthly statements to explain how to build and maintain good credit, and for finding creative ways to encourage young consumers to develop good credit habits. They reward on-time payments with a higher cash-back bonus and give card holders monthly access to their credit score along with an interactive tracking tool. A higher-than-average APR should encourage most card holders to pay their balances in full each month, establishing a life time of good financial habits.

You can research other cards at the following sites:

• CardRatings.com is part of U.S. Citizens for Fair Credit Card Terms, a consumer advocacy group devoted to educating consumers about credit cards.
• IndexCreditCards has what is probably the longest list of credit card offers to compare and choose from online, with nearly 2,000 cards. They also have credit card calculators that calculate how long it will take you to pay off your card or how much additional to pay to get it paid off by a certain date.
• The FatWallet forums have a great what credit card should I get? FAQ.
• FiveCentNickel maintains a list of current balance transfer credit cards.
• GetRichSlowly has steps to get free online credit report.You can check:how to get free credit report as well as our own credit card comparison tables.
• In Canada, try Money Tools, a website run by the Financial Consumer Agency of Canada. It provides an interactive credit-card selection tool.

Please make sure to double-check offer terms at the card issuers website as terms change frequently and the information above may not be up to date by the time you read this. If you choose to use credit cards, make a commitment to use them responsibly. I believe that most of the people who read this site are ready to do so. Like me, you may have had trouble in the past, but the fact that you're willing to learn more about personal finance demonstrates that you have some semblance of discipline. Use it. Finally, here's an infographic from CardRatings on how to choose a credit card.

This article is about Basics, Choices, Credit Cards, Hints and Tips, Money Hacks