A recent Bankrate survey showed that only one-third of people under 30 owns a credit card. Avoiding debt risk is commendable, but establishing a healthy line of credit could be necessary to rent an apartment, buy a car, or even land a job. With the right card, you can safely build credit with responsible use.
Particularly if you have student loan debt that you are trying to pay off, it’s important to pick a credit card that is a good fit for your current financial situation. The last thing that you want is to pick a card that does not work for your lifestyle or that will make an already precarious financial situation worse.
If you’re starting your adult life and aren’t sure which credit card is the wisest choice, here’s an overview of three main types to help you decide.
What is the best credit card for me?
Secured credit cards
If you do not have a long credit history or you have other debt that weighs down your credit score, you could have difficulty qualifying for a traditional credit card. A good alternative in this situation is a secured credit card. A secured credit card is also a great option if you’re still building good financial habits and want to avoid making credit card charges before you have the money to pay them off.
Secured credit cards differ from traditional cards because you must put down a deposit to get one. That deposit then becomes your credit limit. As a result, you’re charging money that you’ve already “paid” for upfront, and you cannot exceed the limit you deposited.
This is why secured credit cards are a good option for those who would either not qualify for a traditional credit card, or who might qualify, but at such high interest rates that the possibility of carrying debt month-to-month would be financially devastating.
These cards allow you the convenience and benefits associated with paying by credit without having to worry that you will exceed your financial means. They are also a good way to build your credit score over time so that you can qualify for other types of credit cards when you’re ready.
- tl;dr. If you’re still trying to get existing debt under control, need to improve your credit history, or just want to be sure you’re not spending money that you don’t already have, a secured credit card might be the best choice for you. Learn more about the pros and cons of secured credit cards here.
Traditional credit cards
A traditional credit card is a type of revolving credit where you have a limit and can charge up to that limit each month, provided you make at least minimum payments. These cards are best for those who have the means to pay the balance in full and on time each month. As a result, in order to qualify for this type of credit card, you must typically have a good credit score and a positive credit history.
Traditional credit cards are often the most logical next step for those who have been using secured credit card successfully for at least a year. You may also want to be sure that any debts are paid off, or that there is a plan in place to do so and your use of the traditional credit card will not interfere with that plan.
You should know yourself well enough to be certain that you will not charge more than you are able to pay off each month, or else you risk accumulating high-interest debt. Although traditional credit cards can be useful in the case of a financial emergency, they should not replace an emergency fund.
While the interest rates on traditional credit cards may vary, your rate should not be the only factor you use to determine whether or not to apply for a particular card. (As long as you are paying off the balance in full each month, you will not be paying interest anyway.) When deciding among cards, consider other fees that may be applied, such as an annual fee.
- tl;dr. To get a traditional card, you must typically have a good credit score. Compare interest rates and extra fees when comparing cards. Traditional credit cards are best for people who can pay their balance on time and in full each month. This behavior will continue to improve your credit score and history
Rewards credit cards
When used responsibly, rewards credit cards “pay” you to use them, whether through cash back, free flights, gift cards, or other rewards or financial incentives. Rewards credit cards are best for those who already have a long and positive credit history and a high credit score.
Many rewards credit cards have higher interest rates than traditional credit cards and may charge an annual fee. This means that they are generally not appropriate for those who may potentially carry a balance from month-to-month.
When it comes to rewards cards, ask yourself “Which credit card is best for me?” Pick a card that rewards your typical spending pattern and provides incentives that align with your lifestyle and goals. What is the best credit card for me may not be the best credit card for you.
For example, a grocery store-branded card that provides statement credit may be the best choice for a young family. On the other hand, an airline branded credit card may be better if you travel frequently (or would like to). It’s also possible to use credit card rewards for student loan repayment!
What you should avoid is a card that forces you to spend in ways that are unnatural to you in order to obtain rewards, or that provides rewards that you will be unable to make use of in your everyday life. Lastly, ensure that the value of the rewards you receive each year exceed what you are paying in interest or annual fees on the card.
- tl;dr. Rewards credit cards are best for those who have an excellent credit history, a high credit score, and are confident in their ability to use credit responsibly. Users should also be sure that they have chosen a card with rewards they will actually use and accumulate in amounts that will exceed the value of any potential cost, such as an annual fee.
Remember that the answer to “Which credit card is best for me?” will change over time. Don’t be afraid to reevaluate your situation in order to make changes that best benefit your situation as it evolves and your financial security grows.
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