There are thousands of card products to choose from. Here's how to find the best deal for you.
Most credit cards work in the same way – you borrow money and repay it according to the terms of the card agreement. Beyond that, significant differences in card terms, costs, and benefits may be important depending on your unique financial needs. There's no such thing as the "best" credit card, but you can find the best card for you.
When looking for the best card for you, it's essential to understand the difference between soft and hard credit inquiries. A soft inquiry happens when lenders screen you for preapproved offers and doesn't affect your credit score. When you apply for credit, that's a hard inquiry and affects your credit, typically to a small degree.
However, applying for many credit cards in a short period can significantly impact your credit score. Each hard inquiry can potentially lower your score by a few points, and multiple inquiries in a short time frame may signal to lenders that you're a higher-risk borrower. Therefore, it's best to narrow your choices to a card or two before applying.
Pre-Qualification for Credit Cards
Many credit card issuers offer pre-qualification tools on their websites. Pre-qualification uses a soft inquiry to show you whether you're likely to be approved for a card and what terms you might receive without affecting your credit score. While pre-qualification doesn't guarantee approval, it can help you focus your search on cards you're more likely to get.
Factors to Consider When Choosing a Card
Since fees, interest rates, penalties, and perks can vary widely between cards, here are some factors to consider when looking for the best deal:
Your Credit Score
Knowing your credit score will ensure you apply for the best card possible. As your score increases, costs decrease, and you get more card options like points that can be redeemed for cash or credit towards other services. And for those with poor credit, secured cards can help you rebuild credit, even though no borrowing is involved.
If you don't know your credit score, you have a few options – a free credit score service and a paid service. Websites that offer free scores, like Credit Karma and Credit Sesame, use your personal information to market products to you and don't require a credit card. Other sites, like the credit reporting bureaus, offer "free" scores as part of a credit monitoring service for a monthly fee (after a free trial month). If you don't cancel, you'll get charged. On the other hand, you can pay for your score from myFICO.com for $20 with no recurring charges.
Once you know your score, here's what it means:
When you search for a card, most offer some description of the expected credit score range. If your credit rating is under the required range, save a hard credit inquiry for other cards with a higher chance of approval.
Your Spending Behavior and Reward Options
Suppose you already have a high credit card balance and tend to carry a balance from month to month. In that case, you'll likely focus on cards with lower interest rates and balance transfer deals.
If you consistently pay your balance in full, you'll want to focus on the perks that matter most to you, from cash back to travel points.
When exploring card options, the cards with the lowest fees and most generous benefits are restricted to those with good to excellent credit. Still, there can be significant differences between cards – no matter your credit score. Some cards may offer extended purchase warranties, trip cancellation coverage, lowest price protection, and more. Not taking advantage of your eligible benefits is like leaving money on the table.
Annual Fees
Another consideration, especially when exploring cards that offer generous benefits, is whether or not the card charges an annual fee. It's crucial to understand whether the benefits provided by the card justify the cost - sometimes several hundred dollars per year. For example, someone who travels often may find airport lounge access worth the fee. But if a fee-based card offers more cash-back than a no-fee card, whether or not it's worth it depends on your annual spending.
Understanding Card Terms and Conditions
Federal law requires that you receive a Federal Truth in Lending Disclosure Statement from any credit card company before you open a credit card account. The statement must include specific account fees, why penalty rates may be applied, and terms applicable when the account is opened. It also tells you all the rules and fees associated with your credit card account.
The Schumer Box
Named after the senator from New York, the Schumer Box is a table that discloses key facts about a credit card, including interest rates, fees, terms, and conditions. It includes:
This box will help you compare cards when shopping for one. It is critical to understand how interest is charged and when penalty fees and interest rate increases are triggered. For cards with similar costs, compare the benefits described in their marketing materials.
While the Schumer Box provides a standardized summary of key terms, it is crucial to read the full terms and conditions of any card you're considering. This document will provide more detailed information about how the card works, your rights and responsibilities as a cardholder, and any additional features or restrictions that may not be covered in the Schumer Box.
Finding and Comparing Credit Cards
There are dozens or even hundreds of credit card comparison websites on the internet, and virtually all of them have one thing in common – they're paid when you sign up for a card they promoted. A credit card may not be listed if it doesn't pay a referral fee. So comparison sites could best be described as "comparing cards for which we're paid a referral fee."
Card comparison sites may offer many options, but what if the best card for you isn't on those websites?
One strategy is to use comparison sites to understand the options available for people with similar credit scores. Then, do something the comparison sites wouldn't expect: contact your bank or credit union. Financial institutions continually compete with one another, so a competitive card offer could be closer than you expect.
Additionally, consider using independent financial websites or tools that don't receive compensation for card recommendations. These can provide more unbiased comparisons and information about different card options.
Remember, the best credit card for you aligns with your spending habits, financial goals, and credit profile. Take the time to research and compare different options, and don't be afraid to ask questions before applying. Your financial health is worth the effort!
Dort Financial Credit Union is a not-for-profit financial cooperative whose mission is enriching people’s lives… members, employees, community. Unlike other financial institutions, credit union ‘profits’ are returned to the membership in the form of lower loan rates, higher dividend rates, and affordable services.
