How to choose your next credit card
Take the right step in finding a credit card to match your day-to-day spending. Let us guide you on how to choose.
Video Transcript: How to choose your next credit card
Video Duration: 3 minutes, 20 seconds
Transcript Date: Feb. 21, 2023
Choosing your card: Elapsed time 0 seconds [0:00]
Sometimes you may receive credit card offers, but how do you know which card is right for you? The right card for you often comes down to your credit history, spending habits, how you manage your repayments and a card's APR, or annual percentage rate — a credit card's yearly interest rate. In general, there are four types of credit cards: rewards points, cash back, low rate and secured.
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If you pay off your balance each month or at least in a relatively short period, you could consider a rewards points or cashback credit card. Be aware that they typically have APRs starting in the double digits. Both tend to cater more toward those with at least some track record of positive credit usage.
A rewards points card typically offers reward points on qualifying purchases that you can redeem for cash back, gift cards and more. It could also offer miles that could be applied towards travel. You may receive more points in one purchase category over another, such as dining versus gas stations, so picking a card that matches your spending habits maximizes your rewards.
A cashback card is like a rewards points card, but you earn cash back with each qualifying purchase instead of rewards. Although some credit cards pay the same cash back rate regardless of where you spend or what you buy, others may have a cap or earn different amounts on certain spending categories, so be sure to read the fine print. Choosing a card that matches your spending habits can be a good thing to consider.
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If you tend to carry a balance from month-to-month or are trying to build credit, consider a low-rate or secured card.
A low-rate card usually doesn't accumulate rewards or cash back, but instead typically has a lower APR. The lower the rate, the less it will cost you in interest to carry a balance into the next billing period. The actual APR will vary depending on your credit profile and other factors.
A secured card offers you a spending limit based on the security or deposit you place with the card issuer and is best suited for someone looking to establish or re-build credit. Credit card issuers may be more willing to approve someone with little to no credit history, or someone with damaged credit history, if there's a deposit that covers the amount that can be borrowed on the card.
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In addition to the APR and the type of rewards or cash back, you'll want to consider any promotional rates that may be offered for a limited time period, fees associated with the card, penalties for missed or late payments, and any other terms and conditions. Military members and those who travel should consider any foreign transaction fees that a credit card may have.
You'll also want to consider other benefits associated with the card like extended warranties, travel protection or price protection to name a few. You can find out more by reading the credit card's Terms and Conditions.
Pick a card for your budget: Elapsed time 2 minutes, 43 seconds [2:43]
So which credit card should you choose?
The credit card that matches you, which means being honest with yourself about your spending habits and how you manage repayments. It also means avoiding the temptation to apply for a card just because of the rewards without considering the interest rate or annual fee. Ask yourself: Do the benefits outweigh the potential cost? At the end of the day, managing your credit card usage in a responsible manner can help set you on the path to financial security.
Visit usaa.com/creditcards to learn more about the credit cards USAA has to offer.
[Description of visual information: The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.
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We all know the type: that friend who flew to Europe for free after cashing in his credit card rewards points. Or the one who amasses cash back and uses it to buy holiday gifts. The daily stream of offers flooding our devices can often seem enticing. But how do you choose which card is right for you?
The right card for you often comes down to your credit history, spending habits and how you manage your repayments. Do you tend to pay the minimum amount owed each month? Or do you pay your balance in full? Features and benefits, along with any fees or other terms and conditions, are also important factors to consider. And of course, consider the credit card interest rate, which is typically stated as the annual percentage rate, or APR.
Most consumers choose from four credit card types:
- Rewards card
- Cashback card
- Low-rate card
- Secured card
Read on for more information about each card type, as well as insight into which card is best suited for you.
Option 1: Rewards card
With a rewards card, you get points based on your spending habits. Different cards may offer more points for purchases in one category over another. For example, one might give you double points on gas and dining out, while another might give you double points on travel. In either case, rewards would apply to qualifying purchases only. So, choose a card that matches your spending habits to maximize your rewards. You can typically redeem points for travel, cash back, gift cards and more.
Is a rewards card right for me?
The interest rate on rewards cards may range, in percentage terms, from the teens into the 30s, and the company issuing the card may charge an annual fee. These are generally best suited for people who pay off their balance in full each month and receive more value from the rewards than any rates or fees that may be associated with the card.
Option 2: Cashback card
A cashback card is like a rewards card, but instead of accumulating rewards points, you earn cash back with each purchase. Just like with a rewards card, cash back would apply to qualifying purchases only, so it's important to choose a card that matches your spending habits. Read the fine print first, because some cards pay the same cashback rate regardless of where you spend or what you buy. Others vary or may even have a cap on how much cash back you can earn.
Is a cashback card right for me?
Also like a rewards card, the APR for cashback cards tends to be higher and there may fees associated. That means cashback cards are generally more suitable for someone who pays off or keeps low balances from month to month. Cashback and rewards cards tend to cater to those with a track record of positive credit usage.
Option 3: Low-rate card
A low-rate card doesn't accumulate rewards or cash back. Instead, it typically has a lower APR that varies depending on your credit profile and other factors. Also, most low-rate cards have no annual fees. When you're shopping around, be sure to compare details such as introductory APRs and how long those rates last.
Is a low-rate card right for me?
When card owners carry a balance from month to month, they pay more in interest. If that sounds like you, a low-rate card may be your best bet, so that the amount you pay in interest isn't as high as it typically is with a cashback or rewards card. You may also want to consider some ways to pay off your current credit card debt.
Option 4: Secured credit card
Secured credit cards offer a spending limit based on a deposit you place with the card issuer and your creditworthiness. For example, you might deposit $500 with the bank as security in exchange for a credit card with a $500 credit limit. Each month when you make your payments, the card issuer will report the information to the credit bureaus. So, paying on time, every time, could help you establish a good track record. This type of card may or may not offer rewards.
Is a secured card right for me?
Secured credit cards are typically a great option for people who want to establish credit for the first time or are hoping to rebuild their credit score. Maybe you're a parent who wants to help your young-adult child build their credit. Or maybe you've had a difficult credit history and want to improve your own standing. Either way, secured credit cards help you get in the game and your added benefit, if managed correctly, could be an improved credit score.
Credit card offers to meet your needs
Some cards may seem great when you read the promotional copy. But avoid the temptation to apply without taking a close look at the details. It's important to apply for a card that matches your spending habits and how you manage repayments. If you're not a detail-oriented person, you probably don't want a card with a promotional rate that will change after a period of time, leaving you with a high APR that catches you by surprise.
And a card that offers 1.5% cash back or attractive rewards but charges a 30% interest rate? It isn't as good of a deal as earning no cash back with a much lower 15% interest rate if you don't pay your balance in full before interest is charged each month, no matter how tempting the cash back or miles may sound.
In addition to the APR and the type of rewards or cash back, you'll want to consider any fees associated with the card, promotional rates, penalties for missed or late payments, and any other terms and conditions. If you're currently using a high interest rate card, you may want to look into a balance transfer.
Along with the fees and penalties, be sure to compare the benefits such as extended warranties, price protection or travel protection associated with the cards you're considering. Some credit cards carry a foreign transaction fee, which is an important consideration for military members who are deployed or stationed overseas.
At the end of the day, managing your credit card usage in a responsible manner can help set you on the path to financial security, while building your credit.
The USAA Advice Center provides general advice, tools and resources to guide your journey. Content may mention products, features or services that USAA Federal Savings Bank does not offer. The information contained is provided for informational purposes only and is not intended to represent any endorsement, expressed or implied, by USAA or any affiliates. All information provided is subject to change without notice.