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Choosing a credit card can be hard. There are thousands of credit cards or prepaid debit cards available to choose from, offered by countless banks, including all the small town banks. Should you get a credit card from your local bank or get a card from one of the big banks that have a well-built reputation? Should you get a rewards credit card? What about one that earns cash back?
These are all questions that will likely pop up when searching for your first, second, or even your third credit card. We’re dedicated to helping consumers make informed decisions so read on to better understand how you can choose which card is right for you!
What are Your Needs?
The first thing you should do is ask yourself why you are looking to open up a new credit card. The reason should never be because you want to go on a shopping spree or for any other reason that can lead to a debt trap. The last thing you want to do is make purchases with interest with the intention to carry the balance. It’s understandable that emergencies pop-up and not everyone has an emergency savings in place.
In my opinion, there are only six reasons consumers should be looking to open up a new line of credit:
1. Build credit
2. Perform a balance transfer
3. Make purchases with 0% interest
4. Earn rewards for purchases you already make
5. Earn travel perks and miles for frequently travelers
6. You need a business credit card for your business expenses
We’re going to cover the first one below and we’ll cover the others in follow-up blog posts.
Check Your Credit Score
Not everyone can get any credit card available on the market. You must have a credit score that meets the credit requirement of that card or you won’t get approved and then you’re stuck with a hard inquiry on your credit report and no plastic. If you have a credit score of 560 and want a card that requires excellent credit, you will absolutely not get approved. If you have a credit score of 700 and the card you want requires excellent credit, there’s a chance you could still get approved for the card, depending on the credit scoring model used and the finer details that are included in your credit report.
If you don’t already know your credit score you may sign up for free at Credit Concierge. Here you can check your credit score, update your score every 30 days, and see an overview of your credit report and your accounts. Since Credit Concierge only includes some of the information contained in your credit report, you may want to pull all three of your credit reports form the major credit bureaus by going to FreeAnnualCreditReport.com. You should actually do this once a year since there’s no charge to you. This will keep you on-top of your credit so you’re not blindsided by anything that shouldn’t be in there or that’s not accurate.
Once you determine which of the above reasons fits your needs and you know your credit score, you will be able to greatly limit what cards you should even be considering. So let’s get started!
Credit Cards for Building Credit
If you’re just looking for a credit card to build credit, chances are you have no credit history, like many college students, or your credit has been damaged and needs repaired. Consumers that fit into this category are considered high-risk to lenders, so the only card you will likely be eligible for are secured credit cards or credit cards for those with poor, bad, or average/fair credit that doesn’t offer many (if any) benefits or features.
Consumers With Damaged Credit
If you have damaged credit that you’re trying to repair, you can still apply for an unsecured card, but odds are you will have better luck with a secured credit card. They work just like traditional credit cards except a deposit is required to open the card, which will act as your available credit line. Some banks will approve you for a higher credit line than the amount you put down, like the Capital One® Secured MasterCard®, depending on your creditworthiness. The most important consideration with secured credit cards is the interest rate.
Interest rates on these cards are usually higher than they are with unsecured credit cards so expect a rate anywhere from about 15%-29% variable. The second consideration is the annual fee because most, if not all, secured cards will have an annual fee. You shouldn’t have to pay money to carry a card, so if it’s unavoidable, at least find the cheapest one possible.
Consumers With No Credit History
If you have no credit history you will have a better chance of getting approved for an unsecured credit card since there’s no track record of damaging your credit. The banks will likely require proof of employment and income.
Start your search by looking only for credit cards for bad credit, fair credit, or no credit history. Compare the list of options using our credit card comparison tool. If you see any offers that come with 0% interest for an introductory period, I would definitely suggest applying for that card, such as the Capital One® QuicksilverOne® Cash Rewards Credit Card (By the way, Capital One has been known to be one of the most accepting of new credit consumers). If you end up finding more than one offer with 0% interest, you next want to consider which card has the longest intro period. Obviously it’s wiser to apply for the card that offers 0% interest for 12 months over 0% interest for 6 months. A credit card comparison will quickly help you find the best Capital One credit card for you.
Next, you should look at the on-going interest rate, but you should also understand that you aren’t going to get a very competitive rate since you don’t (yet) have excellent credit. You also need to keep in mind that this is irrelevant if you don’t plan on carrying a balance with your credit card. In other words, if you pay off your balance before the statement close date every month, you will never pay interest. Find out more about your grace period and statement cycles.
Your third consideration is the fees that come with the card. There are a number of fees that come with credit cards like the annual fee, transactional fees and penalty fees. You never want to carry a card that will cost you money just to have it, so if possible, eliminate cards that come with an annual fee and work your way down from there.
Finally, see if the potential cards available to you come with any additional perks and benefits. If you can find a card that offers rewards of any sort, that’s a winner. It’s very rare for credit cards designed for consumers with no credit history to offer any kind of reward, so if you find one that fits your needs, consider yourself lucky. Other things to look for include perks like fraud protection, extended warranty protection, credit tracking, and some even offer annual account reviews for credit line extensions.
Already have good credit? Check out our post about choosing the right credit card for performing a balance transfer!
*Editorial Note: This content is not provided by Capital One. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by Capital One.
*The content in this article is accurate at the publishing date, and may be subject to changes per the card issuer.