When it comes to making a major purchase like buying a house or car, most people do their homework to make sure they’re spending their money wisely and getting what they truly want.
Who would’ve thought that choosing a credit card fell into that same process? I always thought you based your decision on the interest rate and if there was an annual fee. While those two pieces of information should still be considered, today’s credit cards have become more sophisticated. How do you know which one to choose?
Start by asking yourself what you want to accomplish. Is it paying off a higher-interest card, boosting your credit rating or maybe working toward rewards? Knowing your end goal is a step in the right direction for finding the card that’s right for you and your credit situation.
Here’s where your credit score comes into play. A good score typically rewards you with a lower interest rate and a few more perks. Most cardholders receive a free FICO score from the credit card issuer, or you can visit a federally authorized site like AnnualCreditReport.com to get a free report. If your score isn’t what you expected, try to find out where things dropped off. IHMVCU is a proud partner with GreenPath Financial Wellness, a nonprofit financial management organization that has assisted individuals for more than 50 years. Connect with a money management expert for a personalized solution that will get you back on the path to better credit.
Types of credit cards
1. LOW INTEREST CREDIT CARD
If you tend to carry a balance on your credit card each month, make it a little more manageable with a low interest card. This type of card usually gives you an introductory 0% APR, plus a lower interest rate while you’re working to pay off the balance. To qualify you need to have a fairly solid credit history and score.
2. SECURED CREDIT CARD
Looking to build or improve your credit? This could be the card for you. Secured credit cards usually require a security deposit of $200 or more, but the deposit is returned if your card is upgraded or you close it while in good standing. Just don’t expect to finance a home renovation or other large purchase on this card — it’s meant for building your credit up so you can qualify for better cards down the road.
3. REWARDS CREDIT CARD
These types of cards usually come with a sign-up bonus and will give points, miles or cash back on the money you spend. The downside — they typically have higher APRs, so you need to be diligent about paying it off at the end of each month. Personally, this is the card for me. I don’t need to build credit, and I’m pretty good at paying off the balance on my existing card. What I really want is a card that rewards me for booking those flights to visit my kids. A reward for treating them to a few dinners wouldn’t hurt either.
Read the fine print
Regardless of the type of card you choose, be sure to ask questions and read the fine print.
- Does the card issuer charge a sign up or annual fee?
- Will the card upgrade to better terms if I remain in good standing?
- What’s the APR?
- Is there a card balance transfer policy?
- How fast does the card earn rewards?
- What are the late fees?
Need help selecting your new card? Download our Credit Card Comparison Chart for benefits at a glance.
Once you’ve made your decision, don’t forget to manage your new piece of plastic responsibly. If you can pay off the balance at the end of each month, do it. You’ll wave goodbye to pesky interest fees and your credit score will only improve. No matter which option you choose, you’re well on your way to better financial health.