If you can avoid credit cards and credit card debt all together, that’s the best option. Most of us aren’t that lucky, though. Credit cards have become a necessity and the market is flooded with options, but it is vital to choose the best option to get the most out of your card.
Know Your Credit Score
Your credit score plays a huge role in if you’ll be approved for a credit card and the rates you’ll be given from banks and credit card companies. Keep an eye on your score by signing up for a free online credit monitoring service, preferably one that doesn’t require you to enter a credit card number, like Credit Karma. On the site, you can see where your score ranks and even get tips on how to improve your score. (Hint: it’s lessening your debt.)
No Annual Fee
Some credit cards charge an annual fee to use the card. This means even if you never use the card, you’ll still owe the company a fee at the start of every year. A lot of these cards offer great benefits, hence why people will pay for them, but they aren’t the best option if you’re looking to lower your credit card debt and work your way up to excellent credit.
Creditcards.com publishes a list of the best credit cards without an annual fee each year, detailing the advantages of each.
See What You Spend the Most On
If you’re trying to save money, you should be examining your spending regularly and following a set budget. If you are, you will know where your money is going. That can help you when it comes to selecting a credit card.
Certain cards are better for purchasing certain things. If you eat out several times a week, you’ll want a credit cards that gives you points or cash back at restaurants. A gamer or movie-lover is going to want a card that rewards entertainment purchases. If you love to travel, you’ll want a card that helps you justify that spur-of-the-moment holiday with frequent flyer miles and no foreign currency conversion fee.
If you don’t plan on using your card for big purchases but are just looking for a way to build your credit, look for one that allows free cash withdrawals or money-back at supermarkets. You can use your card for these everyday purchases, then pay it off straight away.
Always Check the Interest Rate
The most effective way to build your credit and avoid debt is to pay your full balance every month, so you are never charged interest. Sometimes that just isn’t feasible, though, and you’ll need to pay a bill in monthly installments. In those cases, your interest rate is incredibly important, as it’s the different between a couple hundred extra dollars and thousands of dollars.
Balance the interest rate you’ll be charged against the benefits the company offers with the card. If you are confident you won’t need to max out the card, it may be worth taking a higher interest rate for rewards you’ll use. If you’re earning an hourly wage and are not confident in your budgeting skills yet, though, low interest rates can be your best friend.
Of course, all companies will tell you their rates are the best, but sites like Nerd Wallet have gone through each claim to determine the real best interest rates on credit cards this year.
What’s Next?
If you’re looking for more money advice, sign up for our “Be Money Smart & Build Your Credit History” newsletter for practical advice and the chance to win free rent!