Skip to main content

How To Choose a Credit Card

196 million U.S. consumers had a credit card at the end of 2021 — a high, according to our Q4 2021 Quarterly Credit Industry Insights Report. With online applications the norm, it’s easier than ever to get a new credit card. But as with all financial decisions, it’s important to do your research before signing on the digital dotted line.

If you’re planning to add some new plastic to your wallet, here are some things to consider:

Know what’s in your credit report

Have an idea of where your credit stands before adding a new credit card to the mix. Get your report and make sure everything is accurate and that you recognize the accounts and personal information listed there. You don’t want any surprises when it comes time to apply for a credit card. If you find something inaccurate on your TransUnion credit report, you can dispute it for free through our online dispute center.

Make reading your credit reports a regular part of your household financial management. You want to go into every application process confident your credit reports are a true reflection of your credit history. If you need help, we’ve created a guide to help you understand each section of your credit report.

Learn the fees and rates

The annual fee and interest rate are important considerations when you choose a new credit card. Not all cards have annual fees, but some with heightened perks or fun rewards can. Know not just how much the credit card’s annual fee is, but when you’ll be charged. On occasion, cards may waive the annual fee for the first year, though many charge the fee with your first billing statement.

Of course, the interest rate is important as well. Your interest rate will be partially influenced by your credit score, which is impacted by your credit history. Your credit history can play a part in being approved as well.

You don’t have to pay interest on your credit card and can often avoid doing so by paying off your balance in full each month. If you can’t pay the full amount, try to at least pay more than the minimum payment. This will help cut down on the amount of interest you pay.

Know how a new card will impact your score

When you apply for a new credit card, it may show up on your credit report as a hard inquiry. A hard inquiry, or new credit, is one of the factors used in credit score calculations. So it may have a negative, though typically minor, impact on your credit score.

Because your payment history is one of the most important credit score factors, continually making on-time payments and keeping your account in good standing can have a positive effect on your credit health over the long term.

Compare credit card types

Different cards are designed for different purposes and for people with varied experience with credit. Whether you’re trying to further build your credit history, get some discounts or travel cheaply, there’s a credit card you may want to consider. Here are some common types of cards:

Credit builder cards

These can be good for people new to credit. They’ll usually be easier to get approved for, but can have higher interest rates and lower credit minimums than other cards. Some credit building cards require a refundable deposit. These are typically called secured credit cards. The initial deposit becomes the cardholder’s credit limit. The deposit is refunded when the account is closed in good standing or the account is upgraded to a standard card with continued good habits.

Cash-back cards

For people who are disciplined and aren’t prone to overspending, cashback cards are a way to get discounts on everyday purchases. As with any credit card, if you plan to use cashback cards frequently, you want to have a budget and spending plan to make sure a card doesn’t make you prone to spending more than you normally would.

Travel credit cards

Travel cards are a popular choice because they often offer bonus points on spending and compelling rewards partners. Some travel cards can have high annual fees, so you want to carefully track whether you’d naturally use the benefits offered to offset the cost of holding the card.

Retail credit cards

Retail or store cards can be enticing for the discounts they offer. If you frequently shop at a particular store, this can be a good way to save money. However, some retail credit cards can only be used at a particular store. And if having a store credit card makes you more likely to spend than you normally would, it may be best to opt for a more generic bank credit card.

Cards used for balance transfers

If your new card is going to be used as a place to transfer a balance, make sure you’re getting the lowest interest rate and transfer fee possible. How long the introductory interest rate lasts is another important consideration. Balance transfer cards can be useful if you have a plan to pay down the debt efficiently before the introductory rate expires. If there’s no plan for the debt and it continues to build, you can be hit with a high interest rate on your remaining balance.

Consider your existing cards

You may have multiple cards based on your various financial and credit goals. If you do have multiple cards, do a yearly check-up of your wallet. Before applying for new credit cards, be mindful of how additional annual fees would affect your budget and the impact opening new credit may have on your credit history. If you’re considering closing a credit card account, know there may be a short-term impact on your credit score.  Make sure your portfolio of cards matches your goals.

Every time you consider applying for a new credit card, take time to fully understand all associated costs and benefits. Your credit products should be helping you achieve your goals, not standing in your way.

Disclaimer: The information posted to this blog was accurate at the time it was initially published. We do not guarantee the accuracy or completeness of the information provided. The information contained in the TransUnion blog is provided for educational purposes only and does not constitute legal or financial advice. You should consult your own attorney or financial adviser regarding your particular situation. For complete details of any product mentioned, visit transunion.com. This site is governed by the TransUnion Interactive privacy policy located here.

What You Need to Know:

There are various types of credit scores, and lenders use a variety of different types of credit scores to make lending decisions. The credit score you receive is based on the VantageScore 3.0 model and may not be the credit score model used by your lender.

Subscription price is $29.95 per month (plus tax where applicable).