How to find the perfect credit card for your needs

The allure of earning enticing rewards through a credit card can be thrilling. However, selecting the ideal credit card for your wallet isn’t always straightforward.

Before you proceed with an application, there are several factors to consider. At the very least, you should evaluate your spending patterns, the rewards that matter most to you, and the type of credit card you're likely to be approved for at this time.

Here’s everything you need to know about selecting a credit card.

Review your credit report

The first step in selecting the right credit card is to review your credit report from one of the three main credit bureaus: Equifax, TransUnion, or Experian.

When applying for a credit card, your credit status will significantly impact your chances of approval. You can access all three credit reports for free once a week at AnnualCreditReport.com.

Make sure to examine each report thoroughly. Understand your credit situation — whether it's good, bad, or somewhere in between. It’s also important to look for inaccuracies and report them, as credit errors can unjustly lower your scores.

If you find mistakes, you can challenge them with the credit bureaus. The Consumer Financial Protection Bureau offers sample dispute letters to assist you.

You can also review your credit scores, but keep in mind that the scores available online may not match what your lender uses. Different credit card issuers set varying minimum credit score thresholds for their cards.

If your credit score is currently in the "fair" category, it may not be the best idea to apply for a high-end rewards card that requires excellent or good credit for approval.

Analyze your spending habits

Next, take a moment to reflect on your spending patterns. Are you spending a significant amount on groceries for a large family? Do you frequently order takeout or eat out?

By implementing an effective credit card strategy, you could enhance your rewards in various spending categories. For instance, some credit cards provide additional rewards when you spend in specific categories, including:

• Travel
• Dining
• Groceries
• Gas
• Entertainment

Selecting a credit card that offers increased rewards on your regular purchases allows you to accumulate more points, miles, or cash back, depending on the card's features.

For example, if you spend around $1,000 monthly on dining, with a 2% cash back card like the Citi Double Cash® Card, you could earn up to $20 monthly (or $240 annually) — 1% when you make purchases and another 1% when you pay; check rates and fees for details.

Imagine if you spent that same $1,000 on dining each month using the Chase Sapphire Reserve®. You would earn 3 points for every dollar spent, accumulating a total of 3,000 Ultimate Rewards points monthly (or 36,000 annually). According to TPG's September 2024 valuations of Chase points at 2.05 cents each, those 36,000 points could be worth approximately $738 in rewards — significantly more value for your spending.

Explore the various types of credit cards available

Once you have a clear understanding of your credit score and the categories where you spend the most, you can begin reviewing credit card offers. From this point, determine which card features resonate with you the most and how you intend to use your points.

For instance, if you have a particular trip planned and know which airline you want to fly with, consider acquiring a cobranded airline card or a card that offers flexibility in transfer options, such as the Chase Sapphire Preferred® Card.

Here are some popular types of credit cards worth considering:

Cobranded airline and hotel credit cards

Cobranded airline and hotel credit cards are perfect for those who are loyal to a specific program but haven’t reached elite status. These cards provide perks that can enhance your travel experience.

With airline credit cards, you can enjoy benefits such as free checked bags, discounts on in-flight purchases, and possibly a faster route to elite status. Conversely, hotel credit cards typically grant mid-tier status, leading to perks like room upgrades (when available), complimentary breakfast, and bonus points on paid stays.

Bank rewards cards

Bank rewards cards provide ultimate flexibility for redemptions since they earn transferable currency points. These cards often feature generous rewards for everyday spending categories.

When you redeem points, you have the option of cash back or transferring points to airlines and hotels, offering great versatility in rewards. By choosing a premium bank rewards card, you can also enjoy valuable benefits like airport lounge access and annual travel credits.

Some of our top picks for bank rewards cards are the Chase Sapphire Preferred and the American Express® Gold Card.

Cash-back credit cards

Cash-back credit cards are ideal for those who prefer a straightforward approach to credit card rewards. There are no rewards programs to monitor, and you won't have to worry about an issuer devaluing your rewards.

Moreover, cash rewards give you the freedom to spend your earnings however you wish.

Cash back cards such as the Blue Cash Preferred® Card from American Express are ideal for maximizing everyday expenses like purchases at U.S. gas stations, U.S. supermarkets (earning 6% cash back on up to $6,000 annually, then 1%), and select U.S. streaming services. Cash back is provided as Reward Dollars, which can be redeemed for statement credits or used at Amazon.com during checkout.

As mentioned earlier, the Citi Double Cash offers a distinctive way to earn cash-back rewards, giving you 1% back when you make a purchase and another 1% when you settle your bill. It also has the potential for high-value redemptions when linked with a premium Citi card.

No-annual-fee credit cards

No-annual-fee credit cards can be suitable for those who want to keep their out-of-pocket costs low while earning rewards.

The Chase Freedom Flex® is an excellent example of a valuable card that comes with no annual fee. It features rotating 5% cash back categories that allow you to maximize your rewards. You can earn 5% cash back on up to the first $1,500 in purchases in these categories each quarter, once activated.

The best part is, if you also hold the Chase Sapphire Preferred or Chase Sapphire Reserve, you can transfer these rewards to Chase's travel partners.

Understand essential credit card terminology

As you explore credit cards that meet your needs, it’s beneficial to grasp the fundamental credit card terms you’ll encounter. Familiarity with these terms will enable you to effectively compare offers from various card issuers and select the best option for you.

• APR: This refers to the annual percentage rate — the interest charged by a card issuer expressed as a yearly rate. The APR may not be as crucial if you don’t carry a balance. With most credit cards, you won't incur any interest if you pay off your full statement balance by the due date.
• Fees: Credit card fees are extra charges associated with specific cards. Common fees to be aware of include annual fees, late payment fees, balance transfer fees, and foreign transaction fees, among others. While a fee isn’t always a dealbreaker, it’s important to understand what you’re agreeing to before applying for a new account.
• Minimum payments: The minimum payment is the smallest amount you can pay to your card issuer each month. Failing to pay the minimum can lead to late fees and negatively affect your credit score.
• Perks: In addition to rewards, some credit cards offer valuable perks. Examples include airline fee credits, TSA PreCheck and Global Entry credits, airport lounge access, and rental car insurance. Enrollment may be necessary for certain benefits.
• Rewards: Credit card rewards typically depend on your spending on the account. They can be in the form of points, miles, or cash back that you earn and redeem.
• Welcome bonus: A welcome bonus is an incentive some card issuers offer to attract new customers. Usually, you must spend a minimum amount to qualify within a few months of opening your new account. For example, this could involve "spending $2,000 or more within the first three months of account opening." If you meet this requirement, you’ll receive a specific number of points, miles, or cash back in return.

Understand credit application requirements

As previously mentioned, having good credit is crucial for qualifying for a new credit card. If you aim to increase your chances of approval for a credit card, it's important to be aware of other factors that card issuers might consider, such as your household income and existing debt.

It may also be beneficial to check credit card application restrictions from various card issuers to determine if any could hinder your chances.

For instance, American Express limits welcome offers to once per lifetime and has restrictions on welcome bonuses if you attempt to open multiple cards within the same family. Meanwhile, Chase generally will not approve you for a new card if you've applied for five or more cards in the past 24 months.

Due to such regulations, it’s wise to apply for the highest Amex card bonus available and monitor your credit inquiries prior to applying for a Chase card.

Conclusion

In the end, selecting a credit card is all about your personal needs. You should look for a card that maximizes rewards in your primary spending categories and supports your future travel aspirations.

Before you apply for a credit card, it’s strongly advised to know your credit score and understand any limitations set by card issuers that might impact your approval chances or eligibility for a welcome bonus. If you qualify and manage your new credit card wisely, it can be an excellent tool to help you build credit while earning valuable rewards as a bonus.