With so many credit card options on the market, selecting the right one can be overwhelming. But that doesn’t mean you should pick one at random. Different types of credit cards offer different perks, and choosing the right one could help you save hundreds of dollars in interest charges — or make hundreds of dollars in free airline miles or other rewards.
Whether you’re a first-time cardholder or a seasoned pro with excellent credit, it’s important to pick a card that aligns with your personal finance goals and lifestyle. Here’s how to choose a credit card that’s right for you.
Key takeaways
Check your credit score before applying for a credit card.
If you have a low score or limited credit history, consider choosing a secured card or student card to help you build your credit.
If you have good credit, a travel credit card or rewards card may be more lucrative.
Consider each credit card’s perks, rewards, and interest rates before you make your decision.
1. What’s my credit score?
Checking your credit score is an important step in managing your financial health, and it’s especially critical before applying for a new credit card. That’s because:
Knowing your credit score helps you get a better idea of your likelihood of being approved for certain cards.
You can use your score to find credit cards that are best tailored to your financial profile.
Your credit score will affect the interest rate you’ll pay on balances.
There are three major credit bureaus — Equifax, Experian, and TransUnion — each of which provides credit reports that include your credit score. The most commonly used scoring model is the FICO score.
The federal Fair Credit Reporting Act ensures you can get a free credit report annually from all three bureaus. In the wake of the pandemic, however, the bureaus are all offering free weekly credit reports through December 2023. You can request your report online at AnnualCreditReport.com.
If you discover errors on your credit report, take action to correct them as soon as possible. This keeps your credit history clean and can prevent unfair damage to your score. To dispute errors, contact the credit reporting agency that issued the report or the organization involved in the error. Be sure to provide evidence to support your claim. The bureaus are legally obligated to investigate and rectify any inaccuracies within a reasonable timeframe.
If your credit report still reflects a low credit score after any errors are fixed, here are a few things you can do:
Pay your bills on time: Developing a history of on-time payments is one of the best ways to improve your score.
Reduce your credit card balances: Credit card issuers prefer to see a credit utilization ratio of 30% or less. This means you’re only currently using up to 30% of your total available credit limit.
Limit new credit applications: Submitting too many credit card applications within a short time period of time could negatively impact your credit score. Try to wait at least six months between submitting applications.
Have a diverse credit mix: Lenders like to see different types of credit on your report. This demonstrates that you can responsibly manage a range of different credit types. If you have a mortgage loan, auto loan, personal loan, or student loan in addition to your credit cards, that could positively impact your score (so long as you’re making payments on time).
2. Why do I want a credit card?
Choosing the right credit card depends on your individual goals and needs. While some credit cards offer attractive perks, others have lower interest rates. To find the best credit card for your needs, first ask yourself what your goals are.
Improve or build credit: If you have little or no credit history, you may want to choose a secured card as your first credit card. You won’t generally need to provide your credit score to open a secured credit card. Instead, you’ll give the credit card company a refundable cash deposit. This acts as a security deposit and is typically equal to your credit limit.
Save on interest: If you already have credit card debt, consider getting a balance transfer credit card with an introductory 0% APR (annual percentage rate). This allows you to transfer debts to a new card with zero interest, which could help you save money as you pay down your debt. Keep in mind, rates skyrocket after the introductory period, so pay down your balance as soon as possible.
Earn rewards: Rewards credit cards offer cash-back programs, travel points, or airline miles in exchange for regular day-to-day spending. These can help you plan vacations or cover other purchases without draining your savings.
Finance a big purchase: If you’re looking to finance a significant purchase and pay it off over several months, look for a credit card with an introductory 0% APR period. Just be careful to pay off your balance before the promotional period ends.
3. What options are available to me?
The next step is understanding the types of credit cards available. Most cards fall into four main categories:
Credit-building cards
If you have bad credit or limited credit history, you may want to start with a credit-building card. These cards often have lenient eligibility criteria. Secured cards require a security deposit, but they make a great stepping-stone to regular, unsecured cards. If you’re enrolled in a college or university, you may also qualify for a student card. Like secured cards, student credit cards work to boost your credit without requiring a high score or long credit history.
Balance transfer credit cards
Balance transfer credit cards could help you save money while paying off credit card debt. Many of these cards offer a 0% balance transfer APR for the first year after you open the card. This lets you make progress on your debt without accruing interest charges during that time. Once the introductory period ends, though, your remaining balance will be subject to the card’s regular APR.
Rewards credit cards
These credit cards are designed for people who want to earn cash back or rewards on their purchases. There are a few different types of rewards cards to consider:
Cash-back rewards cards offer a percentage back on spending.
Points-earning cards accumulate points for various redemption options.
Miles-earning cards accumulate airline miles or other travel rewards.
Flat-rate cash-back credit cards offer cash back on all purchases, usually at least 2%. Other cards offer around 5% cash back on spending in specific categories. Many of these credit cards offer bonus rewards for purchases made at gas stations or grocery stores, for example.
You can redeem cash-back rewards as a statement credit on your next bill, or you can link your card to a savings account to automatically transfer them to your bank. And if you’re feeling generous, some companies even let you donate your rewards to charity.
Low-interest credit cards
A low-interest credit card is a good option for financing expenses over time. These cards typically come in two forms: those that simply offer a lower APR than average, and those that offer a 0% intro APR. If you have a large purchase coming up and plan to pay it off quickly, a card with a 0% introductory period can be a smart choice.
4. How does each option stack up?
Once you know what you’re looking for, you can use an online service to help you compare available options. One convenient option is Navient Marketplace. Credit card comparison tool Fiona works in partnership with Navient to match borrowers to a wide range of custom credit card offers. When you search for card options on the Navient Marketplace website, Fiona will work up a list of offers from various lending partners, including Chase, Capital One, and Citi. Each offer will be tailored to your needs and financial history. You can then compare these credit card options to help you make an informed decision.
5. Which card offers the best value?
Once you’ve received credit card offers through Navient Marketplace or another comparison tool of your choice, review your options carefully. Here are some key factors to keep in mind for each type of card.
Credit-building cards
If you’re shopping for student cards, secured cards, or other cards to help build up your credit, you’ll want to look for:
Credit increases: Choose a secured card that offers periodic credit increases as a reward for good spending habits.
Transition to unsecured: Look for a secured credit card that provides an easy transition to an unsecured card with no need for a new application.
Balance transfer and low-interest credit cards
If you’re looking to pay off existing debt through a balance transfer credit card, compare the following criteria:
Length of welcome offer: The longer the sign-up bonus period, the better. While the average introductory period is 12 to 18 months, you can find some credit cards that offer 0% interest for up to 21 months.
Balance transfer fees: Credit card companies typically charge cardholders a fee to transfer a balance. That fee is usually 3 to 5% of the balance being transferred. This can make it quite expensive to transfer big balances. However, some cards don’t charge transfer fees at all — though these typically have shorter introductory APR periods. If you know you can pay off your debt quickly, however, choosing a fee-free card can save you a lot of money.
Penalties or late fees: When possible, select credit cards that don’t charge a penalty APR or fees for late payments.
Rewards credit cards
If the primary purpose of your credit card is to earn rewards from everyday purchasing, consider the following:
Rewards program: Decide what type of reward program would benefit you most. If you’re a frequent traveler or want to save up miles to visit family, consider a travel credit card. If you have an international trip in your sights, choose one with low foreign transaction fees. If you spend a lot on everyday purchases like gas or groceries, a regular cash-back card might be better.
Low spending requirements: Many rewards cards require you to spend a certain amount of money during the introductory period in order to earn big bonuses. While you may want to meet the spending limit to maximize the benefits, it’s not worth stretching your budget to do so.
Annual fees: Many reward cards come with annual fees. So, make sure the rewards will outweigh the cost of the fee. When possible, choose cards with no or low annual fees.
Compare credit cards on Navient Marketplace
Whether you want to build your credit for the first time or get rewards for everyday spending, Navient can help you find a new credit card that suits your needs. Explore Navient Marketplace to compare different offers tailored to your lifestyle.