How Should I Choose a Credit Card?

There's no such thing as "the perfect credit card." But there is such a thing as "the perfect credit card for you."

What Kind of Credit Card User Are You?Narrowing the candidates down from the thousands of cards that are available depends on which of these categories you fall into:

  • "I never carry a balance, always pay my bill on time, and make complete stops at every stop sign." A rewards credit card may be very rewarding for you.
  • "I occasionally carry a balance, spread my spending across several credit cards, and sometimes pay cash." If that describes you, then a card's interest rate will be an important item on your shopping list.
  • "I have little or no credit history, or one riddled with blemishes, and I can't seem to qualify for any credit cards." Your options will be limited until you establish or rebuild your credit, however, you still have choices and should be particularly mindful of fees.

Take some time to think about your financial habits and needs, and how well each kind of card might serve you.

Types of Credit CardsIf you put a lot of your purchases on plastic, have a good credit history, and pay off your balance each month, consider the following cards that give you something back when you use them:

  • Cash-back cards: These cards let you accumulate cash whenever you make purchases. Some offer a flat rate, such as 1%, 1.5%, or 2% of all you charge, while others offer tiered rewards, such as 6% on grocery store purchases, 3% on gas station purchases, and so on.
  • Rewards cards: These cards let you accumulate rewards points, which can be applied toward purchases of gift cards or at many retailers, hotels, etc. Some are co-branded with a particular retailer, giving you extra rewards when you patronize that company. Read the fine print before signing up to learn whether your points can be reduced or revoked for any reason, such as if you make a late payment.
  • Air miles cards: The travel industry is rife with credit cards, allowing you to accumulate points that can earn you free trips and other perks. They can be complicated, so read up on their terms.

If you have little or no credit or a rocky credit history, consider:

  • Prepaid cards: Prepaid cards are not really credit cards, as you load them with a sum of money that you can then spend with the card. They're like mobile checking accounts.
  • Secured cards: Secured cards, which can be used to rebuild your credit, involve depositing a certain sum and then being able to charge that much. You then need to repay the amount in order to be able to charge that much again.

Factors to ConsiderYou might have settled on whether you need a cash-back card or a rewards card, but don't stop there. Consider the following factors, too:

  • Interest rate: A low interest rate is obviously good, but if you're going to be paying off your bill in full each month (the best way to use a credit card), then it's not that important. If you think you'll be carrying some debt on occasion, consider the interest rate more. Find out if it's fixed or variable, and if you're using a balance-transfer card to move debt from a high-rate card to a low-rate one, find out how long the low rate lasts.
  • Annual fee: Many credit cards charge no annual fee, while others might charge $50, $75, $100, or more. You can often get better rewards from a card that charges a fee. However, weigh the value of the rewards (and your likelihood of using them) against the annual fee.
  • Grace period: The grace period is also important. It's the time you have between the end of your billing cycle and the due date for that cycle. It's often between 20 and 30 days.
  • Fees: Look into what fees are charged for any actions you're likely to take, such as getting cash advances, paying by phone, or paying a bill late. Fees can be particularly brutal on prepaid and secured credit cards, so scour the fine print.

Comparison-ShopThere are many websites that can help you compare and select cards. Click over to,,,,, and, for examples and insights into the cards that best suit your needs.

The article How Should I Choose a Credit Card? originally appeared on

Dayana Yochim has no position in any stocks mentioned. Selena Maranjian owns shares of American Express and JPMorgan Chase. The Motley Fool recommends American Express. The Motley Fool owns shares of Capital One Financial. and JPMorgan Chase. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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