Q: I’m looking for a new credit card, and I’m confused by the many options. How can I find the credit card that fits my lifestyle?
A: The credit card that’s best for you depends on your life circumstances, financial habits and goals. Let’s take a quick look at four kinds of credit cards so you can better choose the one that best fits you.
Low-interest cards
Low-interest, 0% APR (annual percentage rate), or balance-transfer cards, all offer very little or no interest charges for an introductory period, which generally lasts 18 months. After that, the card’s ongoing APR kicks in.
Pros:
Pay off debt quicker
Consolidate debts into one payment
Qualify even with a low credit score
Cons:
Ongoing APR can be higher than average
The new credit line can trigger overspending
Great choice for: consumers looking for a way to consolidate their debt, pay it off quicker and lower their overall interest.
Not recommended for: consumers who are likely to overspend by having more available credit and are unlikely to pay off their debt before the introductory period ends.
Low-balance cards
Cardholders will need to prove they pay their bills on time and lead a financially responsible life.
Pros:
Does not require a strong credit history; may not even require one
Gateway to “real cards”
Cons:
Low starting balance
High interest rates
Great choice for: beginner credit card holders who have slim or no credit histories.
Not recommended for: consumers with high debt and are looking for more credit from a card with easy eligibility requirements.
Rewards cards
These credit cards offer the cardholder some kind of reward, such as gas points, cash back or travel points, for every dollar spent.
Pros:
Rewards can be significant
Credit limits are often generous
Cons:
Generally require a strong credit history and high credit score
Rewards can have complicated rules
May have a high annual fee
Interest rates can be high
Great choice for: big spenders with high credit scores who are able to pay their monthly credit card balance in full.
Not recommended for: cardholders who will find the rewards system too complicated.
Retail cards
Retail cards, or store cards, can fall into two categories:
Closed loop – which means the card can only be used by the associated retailer, like the Target RedCard™.
Open loop – sponsored by a retailer and backed by a major credit card network.
These credit cards offer lots of kickback in the form of ongoing discounts, cash-back and special promotions.
Pros:
Ongoing discounts
Cons:
Can have smaller credit limits
May have steep interest rates
Often require high credit scores
Great choice for: Loyal customers of a specific brand who have excellent credit scores.
Not recommended for: the budget-averse shopper, as these cards can lead to racking up lots of debt.
Use this guide to help you choose the credit card that best fits your lifestyle.
