What are the Best Credit Cards for You?

The best credit card for you really depends on how you use your card – that’s how I started my email to a lady named Brigid who recently joined my email newsletter and was asking what the best credit card was for her to use.

I actually met Brigid a few months ago at a local event and she remembered me talking about Money Smart Life, so when she started her search for a new credit card she reached out to me.  She was looking for a list of the top three credit cards and wanted to know what my favorite ones were.

Of course, my reply was that how you plan on using your credit card makes a big difference in which one is the best for you.  Here are some of the questions I sent back to her to help narrow it down:

1) Do you carry a balance or pay off your card in full each month?
2) How often do you travel each year?
3) Approximately what dollar value do you charge on your card each year?
4) Do you use your card to buy gas and/or groceries?
5) What card(s) do you currently use?
6) Do you have a good credit score?

Of course this doesn’t cover all the bases but it was a quick starting point to get a feel for her situation. Brigid runs her own business so she’s a pretty busy lady and I haven’t heard back from her yet.  I started writing up more detail on the reasoning behind each question and my answer grew long enough I decided to post it for everyone. 

1) Credit Card Balances

If you’re going to carry a balance then it’s best not to use a credit card at all because the interest you’ll pay will be steep.  If you already have some credit card debt you’re paying interest on, one option is to consolidate the balance into a lower interest loan.

You might be able to get lower rates with a peer lending service like Lending Club or you could also look into a balance transfer credit card if you’re going to pay it off within the 0% interest window.  Citibank usually has some of the best balance transfer terms out there, for example cards like the Citi Dividend Platinum Select or the Citi Platinum Select. 

2) Travel Rewards Cards

If you don’t travel much then a card that earns you rewards for travelling or points that you can use for flights and hotels won’t do you a lot of good.  I know I used to have frequent flier points that I didn’t use or that expired over time.

If you’re not a frequent traveller but you’re saving up for a big trip some day just keep in mind that airline miles or hotel points may not have the same bang for their buck when you’re ready to use them in a few years.  For example, the Southwest Rewards card, is changing their airline rewards program so that points never expire.  But you still have to fly or use one of their rewards partners once every two years to keep your rewards active.

Since rewards programs change over time so it might be best to use something like cash back rewards and save the cash.  Cash rewards don’t usually have as good a redemption policy as travel rewards or gift cards but if it’s for years down the road, at least you know the value of your cash won’t change.  Another option is to use a card that isn’t tied to a single airline, such as the Blue Sky card from American Express.

If you do travel quite a bit, a good follow up question would be how do you spend most of your money when on the road?  This can help you determine if you’d benefit most from airline rewards, rental car rewards, or hotel rewards.  One thing to keep in mind is that some of the best travel rewards cards are offering big bonuses these days so be sure to compare those as well.

3) Credit Card Reward Caps & Tiers

If you don’t buy that much with your card each year then the one you chose won’t make that much difference.  On the other hand, if you put many of your purchases on your card like we do, then you’ll want to look closely at the amount you charge. 

Some cards, like our Amex Blue Cash, pay out much higher rewards once you’ve crossed an annual spending tier.  Before you reach the tier you earn a lower percentage cash back on your purchases, then once you cross it the amount of the cash rebate goes up considerably.  So compare what you’ve spent in the past on your credit card against any rewards tiers of a card you’re considering.

Other cards have limits on how many rewards you can earn in a month or a year’s time.  For example, the Discover card is great because it pays out 5% cash back on different categories throughout the year.  But it does put a cap on the dollar amount that earns the 5% cash rebate, after you reach the cap you go back to earning 1% cashback on purchases.  Discover publishes the 5% cash rewards schedule every year so compare what you typically spend in a category against the caps.

4) Grocery & Gas Credit Cards

Th reason I asked about groceries and gas purchases is that some of the best cash back cards like Chase Freedom and the True Earnings card have higher cash rebates for those categories of purchases.  For example, one of the spending categories in the Fall for the Freedom card is grocery stores – during which time they pay 5% cash back on groceries.

The Costco True Earnings card gets 3% cash back on the first $3,000 of gas purchases a year, whether you make them at Costco or any gas station, which makes it one of the best gas credit cards out there. So the kinds of things you typically use your credit card for can make a difference in which might be the best card for you. 

For example, I mentioned that we use Blue Cash from American Express that gives higher cash rebates for both gas and supermarket.  We buy a lot of groceries for our family and a considerable amount of gas for my daily commute so it’s a great card for us.  Below’s a snapshot of our rewards part way through last year:

So one tip is to look back at what types of things make up the biggest percentage of your spending and see which, if any, cards offer programs suited to those categories.

5) Comparing Credit Cards

You’ll want to compare credit card benefits if you already have a card, because applying for a credit card and opening new credit lines can have an impact on your credit score.  You want to make sure that the benefits of the new card are worth the implications of adding a new credit line to your credit report.  You also have to think about how many credit cards you already have in your name.  If you have a history of applying for lots of credit cards your credit score could suffer.

So when you compare a new card to your current card be sure you look for one with lower or no credit card fees and better rewards programs & terms than what you already have.  If you sometimes carry a balance then finding a card with a lower interest rate is also important.  Make sure you think about all the factors of the card, not just which one has the biggest new customer bonus or lowest introductory APR.

6) Credit Score Importance

If you have a good credit score then you shouldn’t have a problem being approved for a credit card.  On the other hand, if you have bad credit or no credit history that will have a big impact on which credit cards you qualify for.

If you’re trying to establish credit or re-build your credit you can get a secured credit card or a secured loan to build up a history of regular payments.  If you’ve had issues with payments in the past and have bad credit then it may be best to hold off on getting a new credit card and focus on improving your credit.

Why Check Your Credit Score?
If you’re not sure what your credit score is, you should check it out before applying for a credit card.  When you apply for a card, your application shows up on your credit report.  The credit reporting agencies like Experian, Equifax, and TransUnion will see the credit inquiry and know that you’re looking to increase your access to credit.  If you have a mediocre or bad credit score and apply for a card that requires excellent credit, not only will you be denied for the card, you’ll also have a credit pull showing up and potentially damaging your credit rating further.

Discounted & Free Credit Scores
You can pay to see your FICO score at myFICO, there’s usually some type of myFICO promotion running where you can get a discount.  There are also several ways you can get a free credit score, be aware that all require you to provide your Social Security number.  The site Credit Karma doesn’t provide your FICO score but rather an alternate score calculated by TransUnion at no charge to you.  Another site called Credit Sesame gives you your credit score from Experian when you use their free service.

Credit Score Benefits
The higher your credit score, the better your credit card options will be.  There are some cards that are designed for people with good credit – for example don’t bother applying for Chase Sapphire or the Marriott Rewards card unless you have pretty good credit.  Cards with lots of perks, services, or bonuses like the Platinum Card from American Express or Chase Freedom – $100 Cash Back card also require a really good credit score. 

Best Credit Card Criteria

As I already mentioned, the questions I asked don’t cover every aspect of rating credit cards but they’re definitely a good start.  Depending on your situation there are certainly other things to consider. For example if you’re a business owner like Brigid then there’s the category of business credit cards that are also an option.  Or if you’re in school you can consider, or may be limited to, student credit cards.

Something else I didn’t ask Brigid was about any credit card fees she currently pays.  I did cover fees some but they probably warrant their own section, what kind of charges and fees does a card have and are they worth it to you?

Hopefully this overview helps Brigid and can also help you find the best credit card for your needs.  Good luck credit card hunting!

Ben Edwards, the founder of Money Smart Life, saved up enough to buy a Nintendo back when he was 12 years old. When he used the money to buy shares of Wal-Mart stock instead, he knew he wasn't like the other kids... His addiction to personal finance has paid off for his family and now he's helping you to afford the life that you want. Check him out on the web at Google Plus, Twitter and Facebook.

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