How do I choose the right credit card?

Credit cards are common everywhere in the world and they’re a very important part of life in the United States. If you’re just arriving in the U.S. from another country, you might be shocked by the number of credit cards you’ll be offered. At times, it might feel like every bank, airline, and store is offering you a special credit card.

With all of these options, choosing the best credit card can be challenging. It’s important to remember that credit card companies want you to sign up for their particular credit card. This is because it benefits the credit card company when you use their card and end up needing to pay interest charges, late payment fees, or merchant fees.

Keeping this in mind, you have to ask yourself which credit card is best for you. For example, if you’re hoping to build your credit history, you might want to start with a secured credit card. On the other hand, if you love traveling, you might be interested in a credit card company that partners with an airline.

However, there are other things to keep in mind. With any credit card you’re considering, you need to analyze the card’s Annual Percentage Rate (APR), annual fees, late payment fees, and overall terms and conditions.

To help you choose wisely let’s look closely at how credit cards work. Below we’ll break down different types of credit cards, how to earn rewards, and what to look for when reading a credit card’s terms and conditions.

In this guide, we will answer the following questions:

• How do I apply for a credit card?
• What are the different types of credit cards?
• What are standard credit cards?
• What are electronic credit cards?
• What are rewards credit cards?
• What are credit card terms and conditions?

How do I apply for a credit card?

Depending on what country you’re from, applying for a credit card in the U.S. states might feel overwhelming. Before we consider different types of credit cards, let’s look at how you actually apply for a credit card.

These days, the most common method is applying online through the credit card issuer’s website. This process involves filling out an electronic application form and submitting it online. After you apply online you’ll receive your card in the mail. Plus, you may be able to use the card on your phone with a digital wallet immediately after you’re approved. We will discuss digital wallets and virtual credit cards later.

Another way to get a credit card is to visit a bank or credit union in person to apply for a credit card. At the bank or credit union’s physical location, you would fill out a paper application form and submit it to a representative. This option will typically work better if you’re keeping your money at a local bank or credit union.

A third option is to respond to a credit card offer received in the mail. In this case, you would fill out the application form included with the offer and return it by mail. However, these credit card offers may not offer the best rewards or interest rates. As such, it may be advisable for you to do some research online or bring these credit card offers to your bank or credit union to ask for advice.

Lastly, some credit card issuers allow you to apply over the phone by calling their customer service number. If you choose this method, you will need to provide your information to a representative during the call to complete the application process. If you choose to apply in this way, make sure you’re calling the company’s real phone number before providing personal information.

Each method offers its own advantages, so you can choose the one that best fits your preferences and needs.

What are the different types of credit cards?

Considering the fact that credit cards were invented in the United States, it’s no surprise that there are many types of credit cards to choose from. Each different type of credit card has its own benefits depending on your habits, needs, and lifestyle.

Some cards are great for traveling while others are perfect for people with no credit history. Even though there are similarities between every type of credit card, there are also some major differences.

So let’s take a look at the most common categories of credit cards you can choose from when getting your first card.

What are standard credit cards?

A standard credit card is a financial tool that allows individuals to make purchases within a set spending limit, even if they don’t have the money immediately available to them. For example, a standard credit card might have a spending limit of $5,000. This card would allow the card user to pay for goods and services which they don’t currently have the money for, up to a value of $5,000. So essentially, a credit card allows users to borrow money from a credit card company or bank as a small loan.

The primary benefit of a standard credit card is that it allows users to pay off their balances gradually. However, users are charged added interest over time, which is basically the cost of borrowing money.

Another notable feature of standard credit cards is their flexibility in payment schedules. Cardholders receive monthly statements detailing their purchases, balances, and the minimum amount they need to pay. As a credit card user, you have the option to choose how much you’ll pay each month, as long as it’s the minimum amount that’s due.

The minimum amount is usually 1% to 3% of what you owe. So if you owe $1,000, your minimum payment would probably be between $10 and $30. However, it’s always advisable to pay off your entire credit card bill as soon as possible. If you can’t pay off the entire credit card balance, it’s important to pay at least the minimum amount by the due date to avoid extra fees.

If you maintain a debt on your credit card after the due date, you’ll incur interest charges based on the card’s Annual Percentage Rate (APR). For instance, if your APR is 18%, and you have a $1,000 balance on your card for one month, you would be charged approximately $15 in interest.

Standard credit cards don’t offer any additional benefits to users other than allowing them to borrow money that they don’t have available right away. The five most common credit card companies are Visa, Mastercard, Discover, American Express, and Chase.

Standard credit cards are perfect for folks who don’t plan to use their credit card often. While it might seem strange that some people wouldn’t want rewards, standard credit cards are simple. So, when you’re managing the payments of your credit card, the process will be less complex. This simplicity can offer peace of mind to some credit card users.

Now that we understand how standard credit cards function, let’s look at some credit cards with additional benefits and perks.

What are electronic credit cards?

As technology advances, the landscape of credit card usage is evolving with the introduction of electronic and digital credit cards. There are primarily two different types of electronic cards, which we’ll examine below.

What are digital credit cards?

A digital credit card is a virtual version of your physical credit card that is stored and accessed digitally through a mobile wallet app or an online banking platform. Unlike a physical credit card made of plastic, a digital credit card exists in electronic form and can be used for online purchases, in-store transactions via contactless payment methods like Apple Pay or Google Pay, and for in-app purchases.

Digital credit cards typically contain the same card information as your physical card, such as the card number, expiration date, and security code. However, your card information is stored securely on your device or in your online account.

In some cases, when you apply for a credit card online you can gain immediate access to the digital version of the card after you’re approved. This means you can start using your new credit card for online purchases or through digital payment platforms immediately without having to wait for the physical card to arrive in the mail.

Virtual credit cards

A virtual card is not the same thing as a digital card even though it might seem similar. In a way, you can think of a virtual credit card as a mask or shield for your real credit card. The virtual credit card hides your permanent credit card details, providing a temporary substitute instead.

When you use a virtual credit card for online purchases, the transactions are charged to your actual credit card account. However, instead of providing your primary credit card number, you use a unique virtual card number, expiration date, and security code generated for that specific transaction.

In many cases, this virtual credit card number can only be used once or a few times. After this use, your bank or credit card issuer can randomly create a brand new virtual card number.

Virtual credit cards act as an additional layer of security provided by your bank or credit card issuer for online transactions. Unlike physical credit cards, virtual cards exist only in digital form. This ensures that your real credit card information remains confidential and protected. Virtual credit cards offer a secure way to shop online without exposing your primary credit card details to potential security risks.

What are rewards credit cards?

Rewards credit cards are a type of credit card that offer incentives to cardholders for making purchases. These incentives can come in various forms including points, cash back, and travel miles. The primary idea is to reward cardholders for their spending, encouraging them to use the card more frequently.

Below, we will take a look at the various types of rewards credit cards and what each card offers.

What are cash-back credit cards?

Cash-back credit cards are favored by some individuals due to their straightforward benefits. With cash-back credit cards, you have the benefit of receiving a portion of your spending as cash rewards, allowing you to earn back a percentage of your purchases and effectively reduce your overall expenses.

These cards may offer a consistent rate of cash back on all purchases, such as earning 2% back on every dollar spent. Alternatively, these cards may feature bonus categories, like earning 3% when you eat out at a restaurant while providing 1% back on all other purchases.

The cash back you accumulate is credited to your account periodically, usually on a monthly basis. You can then redeem this cash-back in various ways, such as applying it as a statement credit to reduce your balance, depositing it into your bank account, or using it to purchase gift cards or merchandise. All of these possible ways to redeem your cash-back depends on the card issuer’s redemption options.

What are travel credit cards?

Travel credit cards offer you the chance to earn rewards tailored for frequent trips. This could be perfect if you travel often, especially if you’ve recently moved to the United States and you want to visit your family in your home country. Likewise, travel credit cards can also be beneficial if you travel within the United States often for business.

The rewards offered from these cards usually appear in the form of flexible credits or points that are meant to be used for travel expenses. For example, you might be able to use your card to cover expenses like plane tickets, cruise tickets, rental cars, and hotel stays during your travels. Additionally, these cards often come with extra perks such as discounts with travel companies or expedited service.

It’s important to note that these credit cards may not be branded specifically as a “travel credit card.” However, through a quick google search, you’ll find certain cards offer their best rewards specifically for travel purposes. One example is the Chase Sapphire Reserve Card. The card doesn’t say “travel” within its name, but as you read the card’s description, you’ll see the best possible way to use the points is for travel-related expenses.

Explaining the precise value of each point or credit, as well as the redemption process, can be challenging due to the wide variation among different rewards programs. But, if you sign up for a specific travel credit card, you will gain access to an online portal or mobile app which allows you to see the value of your points and how to redeem them.

What are airline credit cards?

Airline credit cards are similar to travel credit cards, but they are “co-branded” in order to function with one specific airline. Unlike travel credit cards with no clear indication regarding travel in the title, airline credit cards explicitly state the name of an airline in their title. For example, you might see a credit card called the Southwest Airlines Rapid Rewards Card. Like travel credit cards, airline credit cards can be specifically beneficial for people who recently immigrated to the U.S. and want to fly home to visit their family.

The primary benefit offered by airline credit cards is the ability to purchase flights with the points you earn when using your credit card to make purchases. The amount of points you earn will be different for each type of purchase you make. For example, you might earn 1 point for every $1 you spend on everyday expenses. Meanwhile, you might earn 3 points for every $1 you spend on products sold through that particular airline. After accumulating a certain number of points, you can use them to either buy a plane ticket or at least discount the price of a plane ticket.

You’ll often see airline credit cards offering deals like 50,000 points if you sign up for the credit card and spend $4,000 within the first 3 months of owning the card.

Something to be aware of is the fact that you’ll likely need to pay an annual fee for these cards. Quite often, to incentivize people to sign up for the card, the first year’s fee will be waived. Yet, starting with the second year, you may have to pay a fee ranging from $60 to $300 per year. Many people view this annual fee as being worthwhile because of the amount of money they save on flights.

Here’s a few of the most popular airline credit cards:

• Citi American Airline AAdvantage
• American Express Delta SkyMiles
• United Explorer Card

Airline credit cards usually offer more than just flight discounts. They can help you access special privileges at airports, like lounges, early boarding, and discounts on wifi or food during your flight. Some cards also provide premium concierge services to assist with reservations and rental cars which can simplify travel planning.

What are secured credit cards?

Secured credit cards operate by requiring the cardholder to submit a refundable security deposit, which usually determines the card’s credit limit. So, if you put down $1,000 as a collateral deposit, you’ll probably be able to spend up to $1,000 on the credit card.

These cards are generally easier to be approved for than unsecured credit cards since you’re essentially pre-funding your credit line, making them a viable option for individuals with no credit history. So, if you’ve recently immigrated to the U.S. and have no credit history, this could be a great option.

Additionally, many secured cards offer the advantage of reporting your balance and payment history to major consumer credit bureaus like Experian, Equifax, and TransUnion. This means that responsible use of your card, such as timely bill payments, can contribute to building your credit score.

Beyond the security deposit and credit limit, secured credit cards function much like any other credit card. They have the same physical appearance as other credit cards, so no one will be able to tell that you’re using a secured credit card. But, it’s crucial to make your monthly payments on time, as the security deposit only comes into play in case you don’t pay the card.

As your credit improves, your card issuer might permit you to transition from a secured to an unsecured card without closing your original credit line. At this point, you may be able to close your secured card account and receive a refund of your deposit.

What are student credit cards?

To get a credit card, you need to be at least 18 years old. If you’re between 18 and 21, getting a credit card might have stricter rules. Student credit cards are designed to help new cardholders start building their credit history. Compared to mainstream credit cards, student credit cards usually have lower spending limits and higher interest rates.

Since students often have little credit history and income, these cards are designed to fit their needs. Some student credit cards give extra cash back for things students often buy, like food and groceries. Others reward students for paying their bills on time or even getting good grades.

Not everyone can get student credit cards. Usually, you need to be a full or part-time student at a two or four-year college to qualify. Some cards might also be an option for students attending trade schools.

What are store credit cards?

Store credit cards, also known as retail cards, are credit cards offered by specific stores or chains of stores. The Target Circle Card and the Costco Anywhere Visa Card are two examples of popular store credit cards in the United States.

Store credit cards function like other credit cards, allowing you to make purchases and pay down the balance later in a billing cycle.

However, some store credit cards can differ from regular credit cards in a few ways. One major difference is the type of card offered by the store. There are two main types of store credit cards: private label and co-branded general-purpose cards.

Private label store cards can only be used at the store or group of stores they are associated with. These are often called “closed loop” cards because you’ll be limited only to the store named on the credit card. Any rewards earned with these cards will be redeemable when you make purchases at those stores.

Co-branded general-purpose store cards, on the other hand, can be used anywhere that accepts the payment network shown on the card. For example, the Costco Anywhere Visa Card is co-branded with Visa, meaning you can use your card to make purchases anywhere that accepts Visa. These cards offer the opportunity to earn rewards both at the associated store and outside of it, often providing elevated rewards for purchases made at the store or group of stores.

What are 0% APR introductory cards?

A 0% APR credit card doesn’t charge interest on qualifying purchases or balance transfers for a set period, known as the promotional period. This period usually lasts at least six months but can be longer. However, if you don’t follow the terms, like making late payments, you could trigger a higher penalty APR. So, it’s crucial to understand the offer details before applying.

You can use a 0% APR credit card in two common ways. The first way is through a balance transfer, which lets you move credit card debt to another issuer, simplifying payments and helping to consolidate debt. So, if you have $2,000 worth of credit card debt on a card with 20% and you want to avoid paying interest, you could potentially transfer your debt to a 0% APR card and pay it off. However, this would only be helpful if you actually pay the debt off within the promotional period and don’t incur more debt.

The other way to use a 0% APR card is for making large purchases like furniture or appliances. If you make these purchases wisely, you could essentially use the card as a loan with no interest. Paying off the card’s balance before the introductory period ends could help you avoid interest charges altogether.

What are credit card terms and conditions?

Credit card terms and conditions are the rules and details provided by credit card companies. When you use the card for the first time, these rules become a legal agreement.

The terms and conditions page is usually split into two parts. The top part has a standard table called a “Schumer box,” named after New York Senator Charles Schumer, which lists all the rates and fees. Below that, there’s usually a collection of small text that explains everything else about the card, like how payments work, details about rewards programs, and other benefits.

You can usually find the terms and conditions link near the “apply” button on the card’s website. If you can’t find it there, you might need to look for phrases like “benefits and terms,” “rates and fees,” or “offer details” on the page. Additionally, you may receive the terms and conditions by email or in physical form through regular mail.

But let’s take a closer look at the things you should be on the lookout for when reading a credit card’s terms and conditions.

Interest rates

This is also known as the Annual Percentage Rate (APR) and sits at the top of the Schumer table. It’s typically presented as a range. If you’re approved for the card, your APR will fall within this range, contingent on your creditworthiness.

Penalty APR

This is a higher interest rate that card issuers may impose if you fail to adhere to the credit card terms and conditions.

Purchase APR

This is the interest rate applicable to purchases made with the credit card and any balance carried forward.

Cash advance APR

When you borrow cash using your credit card, the issuer may charge you a cash advance rate, which is generally higher than the purchase APR.

Annual Fee

The annual fee, found in the Schumer box, represents the membership fee for the card. It indicates whether the fee is waived for the first year in the terms. Annual fees can range from $0 each year up to $700 each year depending on what the card offers.

Additional Fees and Penalties

In addition to those already mentioned above, the Schumer box details further charges and penalties. Let’s look at some possible fees and penalties.

Cash Advance Fees

Initiating a cash advance using your credit card incurs an immediate cash advance APR charge and a fee, typically $10 or 5 percent, whichever is higher. The most common way to make a cash advance is to use your credit card at an ATM to withdraw cash.

Cash Advance Terms

You may want to avoid using credit cards for cash advances. This is because cash advances usually come along with high fees, elevated interest rates, and no grace period. This means interest can begin to accumulate immediately.

Foreign Transaction Fees

These fees apply to international purchases made abroad or online with foreign merchants, typically ranging between 2 to 3 percent, depending on the issuer.

Returned Payment Fees

Your credit card issuer may impose a fee if a payment made by check or online is declined by your bank due to insufficient funds.

Late Payment Fees

Missing your credit card payment may result in a late payment fee. This fee is currently capped at $32 as of 2024, by a Consumer Financial Protection Bureau regulation.

Sign up or welcome bonuses

When you’re checking out a sign up bonus, you’ll usually find the details right there in the fine print of the card, often under “offer details”. This part will tell you how much bonus you’ll get, whether it’s in points or cash back, and what you need to do to earn it, like spending a certain amount within a specific time.

Keep an eye out for any rules about getting the bonus, like if you’ve had the same card before or if there are limits on what counts as a qualifying purchase. Also, look for any waiting times before you can try for another bonus on the same card or rules saying you can only get one bonus per card type in your lifetime.

Lastly, be aware that some purchases might not count towards earning the bonus, such as balance transfers or buying foreign currency.

Earning Rate

“Earning rates” in credit card terms refer to the rate at which you accumulate rewards, such as points or cash back, based on your spending. For example, a card may offer 2 points for every dollar spent on groceries and 1 point for every dollar spent on other purchases.

In the fine print close to the sign up bonus section, you’ll see information explaining these earning points or cash back. This section will outline which purchases qualify for rewards, any limits on how much you can earn, and other restrictions you should know about.

Redeeming your rewards

Near where you find the earning rate info, you’ll see how to redeem your rewards. This includes what you can get and any rules you need to follow. Unfortunately, this info isn’t always easy to find. Especially for programs with points or miles, it can be scattered. So, it’s smart to check the rewards program website for all the details.

Rewards Expiration

Some actions could make you lose your rewards, such as missing payments or having account issues. Also, check for any expiration dates on your points or cash back. Some cards let you keep your rewards as long as your account is open, but others have strict time limits, sometimes as short as one month.

Redemption Rules

Examine how you can use your rewards, considering the available options, any minimum redemption requirements in dollars or points, and how straightforward or challenging the redemption process is. If it seems overly complicated, it might not be worth your time, even if the rewards seem appealing.

Conclusion

Ultimately, the key to choosing the right credit card lies in aligning the card’s features with your personal financial needs and goals. By carefully considering each card’s fees and rewards, you can confidently navigate the credit card landscape and choose the best card. As long as you’re careful with your credit card, you’ll be able to build a good credit history and maximize your benefits.

Credit cards can provide access to financial resources you may not have immediately available. This can be helpful when unexpected expenses come up or when you want to purchase a large item. However, the amount of money that credit cards offer still might not be enough in some cases. In these times, you might need to apply for a loan.

In the next article, we’ll turn our attention towards understanding and managing loans in the United States. In the U.S. there are various different types of loans ranging from mortgages for homes to loans designed for personal expenses. Before applying for a loan it’s helpful to understand the loan’s terms and conditions, how your credit will be checked, and what documents you’ll need. Stay tuned as we examine the details and features of different types of loans.