Choosing the best credit card for you and your family is an important decision.
When faced with the vast array of options, it may be helpful to think of credit cards as a household tool. When used responsibly, credit cards can be useful in building credit, earning rewards and even collecting cashback bonuses.
Just as you select the right household tool for the job, choosing the best card for your family requires asking questions and understanding your options. Here’s how to choose the best credit card for you in three easy steps.
1. Check Your Credit Score
Your credit score determines which cards you will be able to obtain. The cards with the best rewards programs require higher credit scores. Surprisingly, even individuals with excellent credit scores can sometimes be denied because they haven’t had a good credit score for long enough. Many credit companies look at your financial history over a five-year period. Credit card companies consider your debt-to-income ratio, as well. If you have a limited credit history or a significant amount of debt, you may be offered a more limited rewards program.
If your credit score has suffered damage and you are looking to rebuild your credit, it may be helpful to apply for a secured credit card. A secured credit card is backed by a cash deposit from the credit cardholder. The deposit acts as collateral for the card in case the cardholder cannot make the payment.
"Secured cards are all about building good financial habits and getting comfortable with credit,” says Justin Zeidman, manager of credit card products at Navy Federal. “Find a secured card with no fees and start using it for everyday purchases. By using your card for purchases you were already going to make and making on-time monthly payments you'll show the issuer you've got what it takes to handle credit."
One card to consider might be Navy Federal’s nRewards Secured Credit Card. This card charges no annual fees, no balance transfer rates, and no cash advance fees.
When choosing a secured credit card, ask yourself these questions:
Will this card help me build my credit? The main reason people use a secured credit card is to increase their credit scores. Make sure the card company reports regularly to credit reporting agencies. Some do not.
How much does it cost to open this credit card account? Some secured credit card companies charge an annual fee in addition to the required deposit. In exchange, they may offer a rewards program. Most of the time, the yearly fee outweighs the benefit of any perks. Try to avoid an annual fee if possible.
Does this credit card allow me to progress to a more competitive card as I build my credit? Choose a card that will enable you to upgrade to a non-secured card with a low-interest rate as your credit score improves. With these options, you can keep the account open longer, allowing you to extend your credit history
2. Decide Whether You Will Pay Off Your Balance Each Month
If you plan to carry a balance on your credit card, choosing a card with an ongoing low-interest rate should be your priority. The interest rate is referred to as the annual percentage rate or APR. Some cards offer an introductory 0% APR, which can be attractive if you plan to make a purchase and pay the balance off quickly. Be sure to note how long the initial rate will last and what the new APR will be. It’s essential to recognize that late payments can trigger an increase in your APR.
If you plan on transferring a balance from another card to a new card to save on interest, be sure to answer these questions:
What is the balance transfer fee?
Is there a limit to how much debt I can transfer to the card?
What kind of debt can I transfer to the card?
What is the APR introductory rate, and what is the rate after the initial APR expires?
3. Determine How You Spend Your Money
Find a card that rewards you for purchases you usually make. If you plan to use your credit card on almost everything you buy, and you pay off your statement at the end of the month, look for a card that will give you a flat-rate cashback reward every month. Flat-rate cashback cards provide you with the same percentage of cash back on anything you purchase. They are the most flexible of all rewards since they are actual dollars and cents that you can use for anything.
“The key to getting the right card is finding one that rewards you for the purchases you make most often. You shouldn’t need to change your spending habits just to fit your credit card’s reward structure,” added Zeidman.
Other cashback cards will vary the percentage based on specific categories of purchases, such as gas, restaurants or groceries. These work well for customers who make recurring purchases or pay monthly expenses using a credit card. Since you are going to make these purchases anyway, getting rewarded for them can be a great benefit.
One card we like is Navy Federal’s More Rewards American Express Card. With no annual fee and 3X points at supermarkets, 3X points on gas and transit, 3X points at restaurants, and 1X points on everything else, this card rewards you for everyday purchases. As with all credit cards, take note of any restrictions that may apply and whether there are any limits to the rewards you can earn.If you enjoy travel and want to earn free trips, consider what incentives are most important to you. Look for a travel card that helps you earn free travel, comes to your aid in travel-related emergencies, and doesn’t charge fees for using it internationally. Additional travel perks may include rental car coverage, lost baggage insurance and travel delay insurance.
When choosing between travel cards, be sure to compare how you earn rewards, as well as how you redeem those rewards. Some cards offer higher percentages on travel-based purchases and a lower rate on other purchases. If you are loyal to a particular hotel chain or airline, consider a co-branded card that allows you to earn higher points or percentages when you make purchases from their brands. These cards often offer perks such as priority boarding, waived baggage fees and upgrades.
Keep an eye out for sign-up bonuses too, but be sure you can cover the spending required to earn the bonus. Some programs have limitations and expiration dates; if you travel internationally, make sure the card you choose has worldwide acceptance. It’s always a good idea to take along a secondary card as well.
The Bottom Line
To choose the best credit card for you and your family, you need to know what your financial habits are and what type of card will work for you. After that, you can research specific cards and compare interest rates, rewards, benefits and offers. Whether you are trying to reduce debt, earn rewards or establish credit, the right credit card should help you accomplish your financial goals.