Signing up for a credit card for the first time is a big financial step in anyone’s life. Even more challenging? Figuring out how to choose a credit card for the first time, with all the overwhelming options available to you.
When you are doing your research about how to choose a credit card, keep this in mind: the best credit card on the market may not be the best credit card for you.
The decision about how to choose a credit card is a personal choice, and is dependent on a variety of factors. In today’s article, I am going to go over some vital tips to help you decide how to choose a credit card that will best serve your personal spending habits.
Should I Get a Credit Card?
Obtaining your own credit card can be an exciting symbol of adulthood and opportunity, but despite the luxury and convenience that credit cards provide, they do come with their own set of responsibilities as well.
When considering how to choose a credit card, think critically about your financial situation.
Are you able to make regular, on time payments on your credit card bill?
Do you have savings? Do you have debt? Your answers to these questions can help you determine how to choose a credit card.
For many credit card users, the experience is a positive one. If you are able to stay within your credit limit (the maximum amount of money your credit card will lend you) and pay the entirety of your credit card bill on time, owning a credit card is a logical next step for you.
As well, the more you use your credit card and pay your bills on time, the more you successfully build up a credit history and credit score.
Your credit score is important because it is a numerical representation of your trustworthiness in the eyes of creditors.
The chain reaction is simple: prove your creditworthiness by paying off your credit card on time, increase your credit score, and thus increase your opportunities for higher credit limits, mortgages, loan approvals and so on.
That is not to say that owning a credit card is all sunshine and rainbows. New credit card holders can sometimes become disillusioned with the freedom that credit limits provide.
The reality is, a small mistake in the way that you use your credit card can have long term consequences, including high interest debt and a poor credit score if you do not make your payments on time. So, how to choose your credit card is an important decision that should not be rushed.
Which Credit Card is Right for You?
When considering how to choose your credit card, the more credit card options you investigate, the more credit card offers you will encounter.
The trick is to not fall for the first card! Rather, do your research to investigate which card is best for you.
The first factor to consider in how to choose the best credit card: the interest rate.
It is sound advice to opt for a credit card with a low interest rate. This way, if you happen to fall behind on your credit card payments, you will owe less in interest with a low interest card.
However, you should not depend on this in order to miss your credit card payments. No matter your interest rates, always strive to pay the entirety of your credit card bill, on time.
Also be aware of credit card offers that waive interest for a period of time as a sign-on bonus. This introductory bonus will soon come to an end, and you will be faced with the realities of high interest on your outstanding bill.
A second factor to consider is credit cards that come with advantageous rewards. These are great cards for individuals who are confident that they will be able to use their card often and pay it off consistently, without incurring debt, as they typically have higher interest rates.
Some rewards credit cards come with cash back or points rewards that will give you a small return on the purchases you make with your credit card.
In some scenarios, these cash back or points bonuses will apply to only certain stores or shopping habits, so in deciding how to choose a credit card, look around for a credit card that gives you the most rewards for the kinds of shopping you do most often (gas purchases, grocery, travel and so on).
Finally, when deciding how to choose the best credit card, you need to consider annual fees. For a first time credit card owner, it is probably best to opt for a credit card with no annual fee as you continue to build your credit score.
On the other hand, credit cards with higher annual fees typically offer higher rewards returns. If you choose a credit card with an annual fee, you will want to do some calculations to determine if the rewards the credit card provides you outweighs the annual fee.
Important Factors About How to Choose a Credit Card
Owning a credit card can make people more likely to overspend.
This can put them into debt that increases with interest and can be difficult to pay back.
So, how do you own a credit card responsibly? Before you ask yourself how to choose a credit card, build up your savings account.
It is wise to have an emergency fund that is not your credit limit.
The best advice in owning a credit card is to treat it like cash; it is important to know when your bill is due and pay off your balance in full every month in order to stay a step ahead of credit card companies, that at the end of the day profit off of interest fees and consumer debts.
The Bottom Line
As the saying goes, with great power comes great responsibility; the same applies for how to choose a credit card.
Selecting your first credit card carefully and being mindful of when you pay it back can ensure that your first credit card experience is a positive and advantageous one!