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Credit cards: How to choose the best one

Credit cards can come with a lot of rewards and a lot of risks. If you have a good credit history and always pay your bills on time, they can provide financial help when you need it and extra perks such as travel rewards and price protection. However, if you use up credit faster than you pay it off, you can also dig yourself into a deep financial hole.

Should you decide you need a credit card, you’ll discover a bewildering array of options. Here’s some advice to help you choose the right one.

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Credit history

While there are many different types of credit cards out there, every company will review your credit history before qualifying you. That’s why it’s a good idea to check your credit history first—not only to see what kind of card you may be eligible for, but also to correct any mistakes in the report that might skew the approval process.

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If you have no credit or bad credit

If you don’t have much of a credit history or you’re recovering from bad credit (e.g., after a bankruptcy), consider applying for a secured credit card. These cards come with minimal credit checks—sometimes none at all—because they require a deposit that determines how much credit you have. For example, a $500 deposit would allow you $500 of credit.

The lending institution faces no financial risk, and just by using the card and paying off the balance, you improve your credit rating.

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What’s your monthly balance?

Time to be honest with yourself. Are you likely to pay off your credit card each month or will you carry a balance month to month? If you answered the latter, you need to pay close attention to the card’s annual percentage rate (APR). This will determine how much you need to pay each month and how fast you will pay off your credit card debt.

You should also check out the APR terms. Is the low rate an introductory offer that will expire after a few months? Are there unusually severe fees if you make a late payment?

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Transfer fees

If you have a credit card with a balance you can’t pay off right away, you might be tempted to transfer it to another credit card with a lower interest rate. It’s not a bad strategy if you’re not going to continually juggle cards until you cash. Just be aware that many cards charge transfer fees, so keep your eyes open for cards with free transfers and maybe even a chance to pay off the balance interest fee within a set number of months.

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Unexpected charges

Credit cards may have hidden fees that drive up how much you pay. For example, some cards have annual fees in addition to charges for additional users, cash advances, foreign currency exchanges, going over your credit limit, dishonoured payments, inactive accounts, and credit card balance insurance.

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If you have a really good credit rating

If your credit score is excellent, then the world is your oyster. Credit card companies will fall over themselves to snag your business with special offers. For example, you may get special rewards, sign-up bonuses, and the best interest rates. You may even receive a card with a limited-time zero per cent interest rate.

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Rewards

If you have a good credit rating and plan to pay off your card each month, then you might want to focus on the kinds of rewards you can get with a new credit card. Could you use a cash-back card, an airline or hotel card, a card with grocery points, or a flexible points card? Any of these might be a good deal, but make sure to do the math first to see if the rewards you’ll receive are worth more than the annual fee you’ll have to pay.

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Travel perks

If travel is your priority, you will have a lot of different rewards programs to choose from. Ask yourself if the sign-up bonus and terms are attractive. Do you want fixed-value travel points or ones that can be transferred? Will the new card work with your existing points portfolio? Are the rewards rates high? Do you want special travel perks, such as access to special airport lounges and elite member status with hotels and airlines?

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Business credit cards

You are on a slippery slope if you use a personal credit card for business reasons. Try to keep personal and work expenses separate: a good business card can help you build credit for your company, grant you access to higher credit amounts, and even provide you with online tools that let you track your spending by category.

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Choosing the card that suits your business

If you run a company or are a “solopreneur” and you’re considering getting a business credit card, check which cards require a personal guarantee for any debts you incur. Also check what kind of rewards and perks they offer, if there are any hidden fees, and if there is a grace period before interest payments are required.

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If you like to shop

If you do a lot of shopping, especially at certain stores, it might be worthwhile to get a retail store credit card. You could be looking at quick and easy credit approval, access to special discounts, extended free-interest periods, and a good rewards program. Just keep in mind that the card would be good for that store only, and it might include repayment terms that cost you dearly.

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Student credit cards

It can make sense for students to have a credit card for school-related purchases. While credit standards for student cards are somewhat relaxed, you still have to meet certain income and credit qualifications. And beware, the rates and perks aren’t as competitive as other cards, and you may need a co-signor.

Parents should be wary, too, as some students, on their own for the first time, throw caution to the wind and use their cards without restraint.

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Optional balance insurance

On the face of it, credit card balance insurance seems like a good idea. It keeps up your minimum credit card payments if you lose your job or have medical problems, and it may also cover you in the event of critical illness or death. When deciding whether to use this option, look for limitations in coverage, beware of high costs, and check whether you’re already covered by an existing personal or work policy.

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Credit card price protection

Nothing is more frustrating than buying a big-ticket item, like a car, only to see it go on sale a few days later. If you can find a credit card with price protection, you may be able to get a refund for the difference in cost within anywhere from 60 to 90 days. Sadly, fewer credit cards offer this valuable feature these days.

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Extended warranties

With some credit cards, you can get extended coverage for manufacturer warranties against product defects and other issues. The extended warranty can last for up to a year after the manufacturer’s warranty expires. To make a claim, you’ll need your sales receipt, the manufacturer’s warranty, and the product serial number and description.

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