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. I have mentioned 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. So i turned to our partner site CardRatings.com which was founded by consumer credit advocate Curtis Arnold, and focuses on making credit cards easy to compare – their credit card comparison table is a good place to start.

  • 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 (APR) 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 balance transfer 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.

Below the table, the CardRatings research staff provide their top picks for the best credit card offers for 2014 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:

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
  • Capital One® Quicksilver® Cash Rewards Credit Card

Compare this card with others in its category and apply here. You'll need good to excellent credit to be considered for this credit card.

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:

  • The Capital One® Venture® Rewards Credit Card
  • PenFed Premium Travel Rewards American Express® Card
  • Chase Sapphire Preferred®

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
  • Amazon.com Rewards Visa® Card from Chase

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:

  • USAA Secured Credit 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. A higher-than-average APR may encourage card holders to pay their balances in full each month, which would help establish good financial habits. CardRatings rounds up a list of their cards here

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.
  • 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.

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CrackingGold.com
CrackingGold.com

Hoyah! I would just like to say that I too was not a believer of credit cards. However, I wanted to establish credit and the best and easiest way to establish credit is through my credit card. I guess now you’ll ask me why it is important that I establish my credit. a) Borrowing money allows us to borrow more money (for business or personal use) b) The best purchase plans (for home plans, car plans, etc.) are available to those who have good credit history. c) Credit extends the use of money through credit terms, ability to purchase products… Read more »

Keiron Nicholson
Keiron Nicholson

Thanks for another great article, J.D. I’d also like to point out another possible consideration when choosing a credit card – ethics. Just as some investors choose to invest in ethical funds (which avoid investing in arms trading, tobacco and so on) there are at least a few credit cards available which aim to have a positive impact on the world. I’m in the UK and am with the Co-operative Bank, who pride themselves on their ethical policy. I have a Charity credit card with this bank. When I signed up, I selected the charity I wanted to support (I… Read more »

BTGNow.net
BTGNow.net

Your Canadian readers might be interested in my Analysis of 7 Canadian Cashback Credit Cards article, which can be found here: http://www.btgnow.net/2008/08/analysis-of-7-canadian-cash-back-credit-cardsand-btgs-free-excel-model/ I discuss the Capital One line of cards, as you have mentioned in the cashback section. I also include a free excel model which readers can download and use to input their own amounts for things like purchases, gas, groceries, annual fee on the card and cashback. It’s very importnat that everyone choses a cashback card only after doing a proper analysis of profitability based on their individual spending patterns! The excel model makes this easy however and… Read more »

Adam Lehman
Adam Lehman

JD.
Though you do get 1% cash back on your card, the store you use your card at is charged 4% by the credit card company for that same purchase.

To compensate for that, stores raise their prices. So, in reality, credit cards COST you 3% rather than saving you 1%. 1% is just a marketing gimmick.

I’m sure you know this already, but it just seems odd that you are talking so positively about credit cards, when in reality, they cause the price of EVERYTHING to rise.

Mo Money
Mo Money

I would add a DO NOT to your list which is good. That is do not sign up at a department store or Home Depot type store for a one time discount. Most of the time their interest rate are in the twenties.

Katherine
Katherine

Remember to try to negotiate rates- my husband and I are grad students, and we were just able to have his Capital One No Hassle card lowered to 4.9% interest (WOW) and a credit limit larger than three months of our income. About every six months I call Wells Fargo and Citibank to see if I can get my rates lowered. Sometimes they say yes, sometimes they say no.

J.D.
J.D.

Good point, Adam, and a tough issue. That 4% is being charged to everyone, right? So non-credit card users are hurt more than those who get cash back. Still, buy using a credit card, I’m just exacerbating the problem. (Do debit cards incur the same fees for merchants? I’m under the impression that they don’t.) Also, I sure hope I don’t come off as positive toward credit cards. My actual feelings are decidedly ambivalent — wary, even. I’m no longer completely opposed to them, as I used to be, but I sure don’t endorse them. My goal is to provide… Read more »

former reader
former reader

Like Adam, I’m surprised to see you talking so positively about credit cards. I only have to look as far as the list of related articles at the end of this article to see an earlier one called “I Do Not Use Credit Cards.” And yet, here you are promoting credit cards. I guess everyone has their price. Color me unimpressed.

Ryan @ Smarter Wealth
Ryan @ Smarter Wealth

Credit cards are kind of like sex. Good if done correctly in the right situation and right manner, but under the wrong hands then it can be really damaging and can destroy lives.
Sorry for the graphic example. But I really enjoyed this post. I want to get a credit card now 🙂

Dan Moore
Dan Moore

If you’re stuck with a Countrywide mortgage, you might think about the Countrywide Rewards Visa ( https://www.firstusa.com/cgi-bin/webcgi/webserve.cgi?partner_dir_name=countrywide_rewardslow&page=cont&mkid=64V6 ). It effectively gets you 2% back on ANYTHING as long as you use it to pay down a Countrywide mortgage or put it into a few types of Countrywide accounts.

There’s more discussion of it here:
http://www.fatwallet.com/forums/finance/710815

NOTE: The interest rate os atrocious, so don’t use it unless you plan to pay completely off every month (IMHO).

jeff
jeff

A few weeks after cutting up my cards, I got a job that required extensive travel. I needed to get a credit to put down for car rentals and hotels, and my company reimburses those expenses. My company books room with a certain brand of hotel a lot, so it made sense to get that brand’s card. The bonus points add up quickly, and soon you’re racking up lots of free nights at those hotels. Pretty cool. That said, the card’s interest rate is atrocious, and I wouldn’t have gotten it if work wasn’t paying it off every month. But… Read more »

Anon
Anon

Chase Freedom doesn’t have a complicated rewards system, that’s only if you choose to use points instead of CASH. ALWAYS choose cash. It’s very simple, the three categories that you spend the most in gives you 3% back, the rest is 1%. If you shop from their online portal, you can get lots of other discounts (6% back from hotels.com + 1% your normal cash back). I haven’t paid a dime in interest in the 1.5 years that I’ve used it and have gotten $750 back so far. It goes directly to savings or the stock market.

mc
mc

Thanks for the credit card series. I tend to think credit cards are the devil, but I like learning more!

Any opinion here? I have been searching the web, but have not found an answer — I have two credit cards, I occasionally use on for a plane ticket or something and never carry a balance. Should I cancel one, or keep two open lines of credit? Both have about a 12K limit.

J.D.
J.D.

MC, from what I understand, if you never carry a balance (and there are not annual fees on the cards), then it’s best to keep both lines open. You do open yourself to increased risk of identity theft, but I think that increase in risk is minor. If you close an account, your credit score will be dinged, but not by much (and perhaps not for long, though I’m not sure on this last point). This is essentially a case where you should do what works for you. If it makes you more comfortable to close one of the accounts,… Read more »

betsy - MoneyChangesThings.blogspot.com
betsy - MoneyChangesThings.blogspot.com

Some people like to use their credit card to do some good in the world, in addition to whatever incentives a particular card might offer. Don’t be fooled by so-called affinity cards. Often the company spends more on promoting them than the actual cause they promote. A lot of folks like Working Assets which distributes a % of its profits to good causes which the card holders vote on.
http://www.workingassets.com/CreditCard/Default.aspx
You can read more about Do Good card choices at http://moneychangesthings.blogspot.com/2007/04/miss-american-credit-card.html

Joyful Abode: Domesticity by Trial and Error
Joyful Abode: Domesticity by Trial and Error

My husband and I chose a credit card together to use for gas, groceries, bills, and other joint/household expenses. (We pay our balance in full every month. We just use credit cards for convenience and for budget-tracking.) We went with some Chase rewards card that said we’d get 3% back on our top 3 buying categories. While the rewards were nice, it was such a pain in the butt to deal with Chase, that after only a couple of months, we closed our account with them and switched to a credit card through our bank (USAA). Our bank has reliably… Read more »

Sam of Fix My Personal Finance
Sam of Fix My Personal Finance

Additional Tips: Keep these tips in mind when looking for or using a credit or charge card.

* Shop around for the plan that best fits your needs.

* Make sure you understand a plan’s terms before you accept the card.

* old on to receipts to reconcile charges when your bill arrives.

* Protect your cards and account numbers to prevent unauthorized use.

* Draw a line through blank spaces on charge slips so the amount can’t be changed.

Sam
Fix My Personal Finance
http://fixmypersonalfinance.com/

Jim
Jim

The American Express True Earnings Card is more of a cash rewards card. They issue a Costco voucher that is good for purchases at Costco or can be redeemed for cash.

Jim

AC
AC

I am sorry if I am repeating others, but Orchard Bank MasterCard offers 2% cash back on all purchases. You can redeem in $25 increments.

It has been good to me since we can charge our normal purchases during the month and get cash back (we do pay it off every month).

Thanks!

Sara Temba
Sara Temba

I agree with the comment you made about credit union credit cards, ESPECIALLY when it comes to traveling overseas. We use a Starbucks Duetto credit card here in the states (feeding my coffee addiction) but when we planned our overseas trip we found out they charge 3% overseas transaction fees on all purchases. I belong to a small credit union and found out that they only charged 1% overseas transaction fees on their credit card (visa’s fee – the credit union didn’t charge anything). Better yet, they had no ATM fees for using their debit card in overseas ATMs! (in… Read more »

Term Life Insurance PopStar
Term Life Insurance PopStar

Wow, this article is awesome. I’ve never really known what to do with credit cards, other than to pay them off each month, so I’ve never really gone searching for which card would be the best for me. The card I currently have gives me 1.5% back on all purchases. I always thought that was good (and I still think it is) but looks like there might be some other cards that would give me better rewards. Thanks for doing some of the research for me.

quinsy
quinsy

Great post. Not sure what’s up with all these naysayers. Credit cards are great. I have had one since I was 16 (12 years), I always pay in full, and I hate carrying cash. There is no reason not to talk positively about the right kind of credit card. Anyone reading this site knows that there are plenty of financial products out there that are not good for you. So there are some evil credit cards, so just use your head and get a good one. This post makes it easy… By the way, even with a debit transaction, the… Read more »

Charles
Charles

@AC: Can you provide some more information about that Orchard Bank MC that offers 2% cashback? I went to their website but didn’t see any reward cards listed.

2% on everything is really good. I average 1.6 to 1.8% cashback overall on my Chase Freedom (that’s taking into account the $50 bonus if you wait to cash out until you reach $200 in rewards).

Thanks!

Adam
Adam

“I am sorry if I am repeating others, but Orchard Bank MasterCard offers 2% cash back on all purchases. You can redeem in $25 increments.”

Have a link for that? Their main page has several cards, but none mentioning 2% flat rate cash back.

deepali
deepali

I think I break some of these rules – my Amex has an annual fee, the interest rate is around 15%, and it does double cycle billing. That being said, I also got 10K miles when I signed up, effectively negating the annual fee. And I pay it off every month now, so the interest rate and double cycle billing are neutralized. And for that matter, they provide an excellent deterrent to not carrying a balance! But. My Amex also gives me Global Assist, so you are absolutely right when you say you have to do what works for you.… Read more »

J.D.
J.D.

I found a page that says the Orchard 2% card has been discontinued. Looks like it was around for a while but went away.

adam
adam

I’m all about the REI Visa card.

MJH
MJH

The best actual cash back card is the HSBC Platinum Cash. Pays 5% cash back on gas, drugstore and grocery purchases, 1% on everything else.

Surprised it is not even mentioned.

t
t

PENFED Platinum Rewards Visa
# Earn 2% cash back on supermarket purchases*
# Earn 5.00% cash back from gas purchases paid at the pump
# Earn 1.25% cash back from all purchases** you make with the card during each billing cycle
# Up to $50,000 limit
# No Annual Fee
# Cash Rewards credited each month
# No special restrictions to earn your cash rewards

-Must have $5 in savings
-Must be in military or sign up for National Military Families Association to get access.

Chris
Chris

The Alaska Airlines card is pretty good if you like to travel. You get a 50 dollar companion ticket every year and you get 2 tickets to go into their executive lounge. Then you get a point per dollar purchased and all the other benefits that you would expect.

I signed up for it cause I know my wife and I will fly at least once a year and it’s nice to know that I can have her fly for 50 bucks.

Ken
Ken

MJH – do you have a link for the HSBC card? I can only find one that pays 2% on weekends and 1% on everything else on M-F.

Jen F
Jen F

As a student, I am interested in getting a credit card. I am very good financing my money, thanks to this website as well as other resources. But I am unsure of which card type to get.

Adam
Adam

If either of your parents are in the military then I would highly recommend using USAA.

Chris Holdheide
Chris Holdheide

Credit cards are great for certain reasons. Although I like my Marathon Master Card. It gives me 5% back on all my gas purchased at Marathon, and 1% on everything else. What a deal.
I only use the card for gas, this way I don’t have to always pay cash. It makes things so much more simple. So in this case it works great for me.

BethC
BethC

I searched for the HSBC card too and didn’t find the 5% cashback. Probably another case where it’s no longer available to new customers. However, that HSBC Weekender card doesn’t sound too bad. Does anyone have experience with this card?

MJH
MJH

Ken,

I just searched for the HSBC card, and I can’t find my deal anymore. I did a little searching, according to http://www.creditcardgoodies.com forums they changed the rewards program last year. But they seem o have grandfathered everyone in who already had the 5% cash back, because I am still getting it, as is my wife.

Sorry to get your hopes up!

Pharmacy Kid
Pharmacy Kid

I have to disagree with “Don’t choose a card just because it offers a signup bonus or because it gives you a discount at your favorite store.” This past summer, I flew to Los Angeles for free because I got a free ticket from AMEX Gold Card. I made sure to cancel the card immediately after getting the free flight and thus avoiding the annual fee. Now through a Delta card, I’ve booked a flight to Panama. Also, the year after that, I’m planning a flight to some place in the US. Has my credit rating been hurt because of… Read more »

Adam
Adam

I love my Barnes & Noble Mastercard, although it’s certainly only for people who like Barnes & Noble. There’s effectively a $25 annual fee, since in order to keep the card, you need to maintain your B&N membership at $25/year. But you get a $25 B&N gift card for every $2500 you spend outside of Barnes & Noble, and an extra 5% over the member discount when you use the card in the store. By using the card for everything, and paying off the balance every month, I generally get a gift card every month (including purchases I make for… Read more »

Amber
Amber

Well played, 4.9% interest rate. Last time I called Cap One, the woman on the phone insisted that my current rate (9.9%) was quite good — so it is, but a girl can try, no? And they haven’t raised my limit of their own volition in a good long time (and I am so not going to call and ask about that — lead us not into temptation and all.)

Also, doesn’t Discover do two-cycle billing?

Josh Ulrich
Josh Ulrich

I use the HSBC Platinum MasterCard with Cash Back Rewards. No annual fee and 1% cash back on every purchase, with no weird cash back terms/restrictions.
It has a variable rate (8.99%-17.99%), but I don’t care about that because I don’t carry a balance. I just like the idea of everything being 1% cheaper.
The Capital One No Hassle Cash Rewards card looks like a better deal though.

Lilly R.
Lilly R.

Being a first time credit card user, I was extremely cautious about choosing a credit card. I checked out every credit card website and read every blog dealing with credit and credit cards. I am happy o say that I ended up with a Capitol One Card and i am very happy with it. I went to the CardOffers website and they were giving away some cash bonuses for signing up with them for Amex, Advanta and discover cards, but being a first time credit card user i felt that I would not qualify for thoes cards. Im a few… Read more »

DeeBee
DeeBee

[email protected]: Some information on the Barnes & Noble Mastercard: I have a Barnes & Noble Mastercard. Instead of opening it via the internet, I called the telephone number specified. I think that when I was asked I just said that I did not have a membership number and that I saw the card information on the website. Barclays Bank opened the account without my having a B&N Membership. I used that card for over one year without having a membership, with no problems from Barclays Bank and no annual fee charged. According to the FAQ on the B&N website: “Do… Read more »

Reit
Reit

It’s simple. Pay off your balance every month and credit cards can be convenient and handy tools. They also build a credit history, which can be invaluable. If you can’t control your credit card use or can’t pay it off monthly, then you shouldn’t have one. Sign up for the no more credit card offers list so you won’t be tempted.

Keiron Nicholson
Keiron Nicholson

I have a question about credit scores, if anyone is able and kind enough to help me.

Because I have Internet banking with my credit card, I often pay off the balance several times a month (that is, if it’s a small balance and it makes sense to just clear it.)

Does anybody know if this could have any effect on my credit score – either positive or negative?

blove
blove

I don’t know if it has changed, but Capital One does not report your credit limit to credit agencies. therefore any balance is shown as being at the cards limit. Example, if you have a limit of $2000, but at this time only have a balance of $200, the credit agencies will show that you have a limit of $200 with a balance of $200. There are other cards that do this, but can’t remember which ones. This will negatively affect your credit score.

sbw07
sbw07

@blove: Capital One started reporting credit limits about a year ago. Check out this article: http://www.washingtonpost.com/wp-dyn/content/article/2007/08/03/AR2007080300890_pf.html

Matthew Gordon
Matthew Gordon

I highly recommend Schwab’s new credit card. It gives 2% cashback on all purchases (deposited monthly into a brokerage account). The card has no annual fees and no foreign transaction fees, so it can really save you a bundle abroad.

Honestly, I’ve moved almost all of my financial accounts over to Schwab. I really like all of their products, especially this credit card and their checking account.

Greg
Greg

I second Matt Gordon’s comment — a 2% cash back credit card is excellent (too good to be true?). I’m using one and the rebates sure do add up.

Z. Brillantes
Z. Brillantes

Hi! I just stumbled on this Twilight Zone Episode about a credit card that has an alternative method on extracting payment. This is the one you should NOT choose.

http://postcardsfromthezone.blogspot.com/2006/06/213-card.html

impressions
impressions

I like this article. well, honestly I really have a bad impression about credit cards. Well, not so long ago i closed all my cards after i paid them off. I’m not just happy with the interest, surcharges, late fees (when i actually pay the same day but was just after the cut off time – I’m not just good in financing),and the annual fee.
i didn’t know that are lots of credit cards that actually has lower interest rate and has no annual fee. I’m now thinking of getting one again. lol!

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