Top 3 Rules for Choosing a Credit Card That’s RIGHT for You

Credit cards can be a great tool for improving your finances. Knowing how to choose a credit card will set you up for financial success for years to come. However, not all credit cards are created equally. Here are my top three rules to consider as you choose the right credit card for your situation.

 
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Table of Contents

3 Rules for Choosing a Credit Card

With all the credit cards out there, how do you pick the right one? We recommend three simple rules.

 

1. Get the Best Card You Can With Your Credit Score

Your credit score determines whether you have access to certain credit cards.

Even if you’re just starting out or had some bad luck along the way, don’t be disheartened if you get declined. Don’t make the mistakes Christina and Ron made in episode 126 of my podcast. With $30,000 in credit card debt, they continued to rack up other expenses ignoring the debt on their card. 

 
 
 
 

Instead, begin paying off your cards every month and stay current on all your debts. Do that, and getting a high enough credit score for the top-tier cards is definitely feasible.

Whatever card you need to start with, use it for a few years and build up a solid credit history. Then try applying for a slightly nicer card and do it again. After a decade or so, you should be able to get any card you want.

 

2. Decide on Simplicity vs. Maximization

Let’s assume you have a good enough credit score to get just about any card you want.

What then?

You’ll need to decide which is more important to you: simplicity or maximizing the value of rewards.

If you want simplicity, get a cashback card. You’ll get a straightforward percentage back on every purchase you make, and there’s nothing you need to manage or remember. Super simple.

Now, if you want to maximize the value of your rewards, you’ll want to get a travel rewards card. These give you points for every purchase that you can redeem for airline tickets, hotel nights, and some retailers. Every point system is a bit different, and redeeming points is always more complicated than getting  basic cash back. But for the extra trouble, you will get more value from them.

The one exception to all this is if you don’t enjoy traveling. Travel rewards cards focus on people who travel. So if you don’t travel at all, stick to a cashback card.

 

3. Factor in the Number of Cards You Already Have

When you’re working on building your credit, I recommend having one card. As one of the credit card rules, only get new cards once your credit has improved and you’re ready to upgrade to a better card.

At the point where your credit score is good enough to get a rewards card, start with one general rewards card that you’ll use for everything. Pick a cashback card that has an above-average cash back percentage across all purchases, or a travel rewards card with a good points program and a few nice perks. Don’t over-complicate it at this stage. One of the most common credit card mistakes is having too many cards open.

Once that feels comfortable, feel free to expand to 2-3 cards. There are a few reasons to do this:

  • Maximize rewards across spending categories. You might put gas spending on one card and travel on another in order to get bonus points on different cards.
  • Add perks. Airline cards have great perks, as do hotel cards. If you travel a lot, take a close look at these.
  • Flexibility with points transfers. Each point program has a different set of partners that you can transfer points to. If you wanted complete flexibility in being able to book airline rewards for example, having a Chase and an American Express card maximizes your partner coverage, so you can book the exact airline or hotel that you want.

I still recommend keeping things simple, even if you consider having multiple rewards cards. Rotating points categories, point hacking games, and cycling through card signup bonuses are more trouble than they’re worth.

 

If You’re a Business Owner, Repeat

Lastly, if you own a business, you’ll want to repeat this process for your business credit cards.

Even a side hustle or hobby business should keep business and personal transactions separate. That makes taxes and expense tracking a lot easier. And since you should separate everything anyway, why not run all your business transactions through a business credit card and get a bunch of rewards along the way?

The same general rules as personal cards apply here. First, decide if you want reward maximization or simplicity. Cashback cards are best for simplicity, travel cards are better for maximization. Second, start with one general rewards card that can cover the majority of your spending. Then consider additional cards if you really want certain perks or want to maximize rewards value even more.

 

How to Choose Between Different Types of Credit Cards

The first credit card was simple. Banks simply provided a card with a line of credit. You charged it, then paid it off. That was it.

Today, things have gotten a bit more complicated. There are travel cards, student cards, business cards, and so on.

Which type of card is right for you? What are the pros and cons of them all?

We broke it all down below so you can choose a credit card that’s perfect for you.

 

Cashback Cards

A cashback credit card gives you back a percentage of everything you spend.

Cardholders typically receive between 0.5% and 2% of their net spending as an annual rebate. Most folks use it to pay down future spending on their cards. Some cards also let you get the rebate in cash.

It’s like getting a permanent discount on everything you purchase with that card. Since most cashback cards don’t have annual fees, it’s free money.

PRO: Cashback cards are super simple. You don’t have to do anything to get your cash back. The rebate shows up automatically. For a rewards card, it’s as simple as it gets.

CON: Don’t ever use the cash back as an incentive to purchase more than you usually would. If you carry any interest on the card, you’ll lose more money than you’ll ever get in cash back. Also watch the foreign transaction fees; many cashback cards have them.

See Nerdwallet’s list of top cashback cards

 
 

Travel Rewards Cards

This is the other main type of rewards credit card.

Travel rewards cards follow the same concept as cashback cards, except users accrue points or miles instead of money. These points can be redeemed for flights, hotel rooms, Amazon purchases, or even cash in some cases.

Some of them also come with great perks like airport lounge access, free nights, companion fares, travel credits, and Uber credits.

PRO: If you enjoy traveling and want to maximize the value of your rewards, get a travel card. You’ll get a better return than a standard cashback card.

CON: Most travel credit cards include an annual fee to gain access to all the perks. These fees range anywhere from $100 for mid-tier cards to $600 for top-tier travel rewards cards. You’ll also have to put more effort into spending your miles/points. Finding the right flights and hotels can take some work if you’re trying to maximize their value.

See top Travel credit cards

Love to travel but want to plan a trip without the guilt? I have all the details on how to take a fabulous guilt-free vacation in episode 107 of my podcast.

 
 
 
 
 
 
 
 
 
 
 
 
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Balance Transfer Cards

This type of credit card allows the user to transfer a balance from one credit card to another.

The new credit card company usually offers a promotional or introductory period—usually, six months to 18 months—with zero percent interest charged on the transferred amount. They’re hoping that you forget about the balance, increase spending, and then start paying them interest once this period is over.

PRO: If you carry a balance, these cards can give you some relief for a short period. When cash is really tight, they’re an option.

CON: Credit cards are a pretty terrible deal if you carry a balance. The interest rates are extremely high. Balance transfers might help in the short term, but they’re not a real solution. Your real goal should be to get yourself to the point where you can pay all your credit cards off in full every month. That’s when credit cards start working for you.

Best Balance Transfer Credit Cards

 

Premium Credit Cards

Premium credit cards, often referred to as black cards, charge an annual fee but offer cardholders lots of exclusive benefits.

Often viewed as a symbol of status, premium cards offer a high credit limit and several perks that are difficult or expensive to find elsewhere.

PRO: A popular benefit of premium credit cards is 24-hour concierge assistance with tasks like booking travel reservations, hotels, and flights, as well as activities like show tickets, restaurant reservations, home emergency coverage, car issues, and more.

CON: Premium credit cards are aimed at consumers with excellent credit and people who fall into a specific earnings bracket. For these reasons, many users don’t qualify for these types of credit cards.

For those users with incredible credit and earning a healthy wage, premium cards come with fantastic perks but substantial annual fees, typically starting at $500.

 

Business Credit Cards

Business credit cards are intended for business owners, no matter the size of the organization. They’re an option if you generate any side income.

They usually have a few perks designed for businesses.

PRO: Cashback categories and perks for businesses. You also don’t need an actual business; you can get one in your name if you generate any income yourself.

CON: Getting a business credit card can be a bit more complicated than a personal card. You might also have to agree to a personal guarantee. That means if the business can’t make payments, your personal funds would have to be used to pay off the card. Depending on the size of the credit limit and your business, this could be an enormous commitment.

Best Business Credit Cards

 

Student Credit Cards

Student credit cards are marketed primarily to people in school who have not yet had a credit card in their own name.

Student credit cards are a great way to solve the “can’t get credit cards without having a credit history” problem that everyone starts out with.

PRO: Because the requirements are less stringent, you’re much more likely to get approved.

CON: They typically don’t have any rewards or perks. It’s a no-frills card.

Best Student credit cards

 

The “Plain Vanilla” Credit Card

The standard, or “plain vanilla,” credit card is exactly what it sounds like. There’s no cashback, no fees, no rewards for usage, and no real benefits besides an extended line of credit.

PRO: These standard credit cards typically get a lower APR than other cards. They’re also typically easier to obtain and come in handy as an “in case of emergency” payment option. If you can’t get approved for a rewards card yet, it’s good to start here and build up your credit history.

CON: There are no perks for spending. In other words, the cards work like a debit card as long as you pay them off in full every month.

Gasoline Credit Cards

These cards offer bonuses and perks for people who frequent a gas station. Many of them are connected to a single gas station brand, like Shell.

PRO: A good way to maximize rewards if you spend a lot of money on gas.

CON: Most gasoline cards target specific brands of gas stations, limiting their rewards on longer drives. It’s better to find a cashback card that gives a larger cashback percentage for the entire gasoline spending category.

Best Gas cards

 

Retailer Credit Cards

These are cards provided by particular companies like Macy’s, Walmart, Target, and more. They typically give store-based perks that you won’t be able to find anywhere else. For example, the Nordstrom card helps get you early access to the annual Nordstrom Anniversary Sale.

PRO: Exclusive perks and rewards for one of your favorite stores.

CON: Unless you spend an exorbitant amount of money at a single retailer, you’re almost always better off getting a standard rewards card to use across all retailers. Some of them are also “closed loop,” which means you can’t use that card outside the retailer. The fees can also be much higher than with typical credit cards.

 

Airline Credit Cards

Airline credit cards can be great if you are a frequent flyer. Nearly every airline out there offers multiple credit cards. The higher the annual fee, the more perks you get while flying with that airline. Perks include priority boarding, free checked bags, discounts on in-flight purchases, companion fares, and lounge access.

PRO: Perks and extra miles when flying with that airline. If you fly regularly, I consider these perks to be essential.

CON: Some of the best perks, like extra miles and lounge access, require you to purchase the ticket on that card. They all have annual fees too. So if you fly many different airlines like I do, trying to get credit cards for all of them will add up.

Best Airline credit cards

 

Hotel Credit Cards

The major hotel chains (Hilton, Marriott, Hyatt, and IHG) offer multiple credit cards. The standard perks can be great, like getting a fifth night free when booking.

But the real perks come from the loyalty status they help you achieve. Having a card can get you 10-15 nights credited to your status every year. Once you unlock the higher status tiers, you can get amazing benefits like room upgrades, free gifts, and late checkout.

PRO: Makes getting status with the major hotel chains a lot easier, unlocking some incredible perks. You’ll also rack up a ton of hotel points when spending at the hotel.

CON: To get the most out of these cards, you need to pick a single hotel chain and stick with it. If you prefer to try new hotels like I do, the value is much more limited.

Watch episode 77 of my podcast to see how credit card debt challenges a marriage. 

 
 

The Ultimate How to Choose a Credit Card Question: Travel Perks or Cash Back?

Generally, there are two kinds of rewards credit cards offer: travel points or cash back. But which one should you choose?

If you want to get every dollar in rewards possible, travel rewards programs always beat cashback cards. For credit card companies, there’s always a percentage of people who forget to spend their points, so they’re able to increase the value of their points over a more straightforward cashback program.

Of course, don’t get a travel points card if you hate to travel. That would be… unhelpful. It’s still worth it as long as you travel once per year, or if you’re like the couple I spoke about on CBS News who turned to travel as a way to retire early.

Maximizing the value of your rewards does come with an extra cost, though. You’ll have to manage your points. They’ll accrue in your credit card account, and you’ll have to make choices on when and where to spend them.

For example, different redemption methods have different values. The American Express Membership Rewards points are worth $0.07 on Amazon and $0.10 on Uber. Every card has its own redemption methods with its own values.

You could use the rule of thumb of always redeeming your points for miles on an airline program. This is a good rule, and it’ll usually maximize the value of your points. But you still have to transfer your points to miles.

Each credit card points program will transfer to some airline programs and not others. And once you get your points into the right miles program, you’ll have to deal with whatever points restrictions your airline has (blackout dates, only certain flights being available, etc.). To add even more complexity, some credit card programs allow you to book flights and hotels directly through them, but then there’s a separate set of restrictions and point values that you have to deal with.

Sounds like a pain? It is.

For me, the extra hassle is worth the free international flights that I’ve been able to get.

If the extra hassle of a travel rewards program sounds exhausting, get a cashback rewards card instead.

Cash back cards still have plenty of benefits without any work:

  • You get a straight percentage back on all charges to your card.
  • The cash back shows up on your statements either automatically or with very little effort. Worst case, you’ll have to log in and hit a button to initiate the cash back.
  • While some cashback cards have maximum payouts, rotating categories, and other nonsense, there are plenty of cards that keep things ultra simple.

It doesn’t get simpler than that!

Here’s how to make your decision:

  • To maximize the value of your points, get a travel rewards card.
  • To maximize simplicity, get a cashback card.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
It’s really that easy!

FAQS on How to Choose a Credit Card

What are the two main reasons for getting a credit card?

  • Build Credit 

A good credit score can help you get better interest rates for things like car loans, personal loans, and mortgages. In addition, by using a credit card responsibly, you might be able to build—or rebuild—your credit history and improve your credit scores. 

  • Earn Rewards 

Reward points are a perk offered by banks to credit cardholders as an incentive whenever they spend. You can collect these points as you spend on your credit card and use them to redeem gift vouchers, merchandise, air miles, and more.

 
 
 

Which is safer, cash or credit card?

Credit cards are more convenient and secure compared to carrying cash. 

  • Cash lost is gone forever. 
  • Credit cards have strong fraud protection. 
  • Credit card fraud has no immediate impact on your cash flow.

What should you consider when choosing a credit card?

Picking the right credit card is like choosing a new smartphone – it needs to fit your lifestyle and budget. Consider the interest rates, especially if you plan to carry a balance. Look at the rewards program; if you love to travel, a card with miles might be your best friend. Don’t forget about annual fees – sometimes they’re worth it for the perks, but make sure the math checks out. Lastly, review any additional benefits like insurance or cashback offers. It’s all about finding that perfect match that complements your financial habits and goals.

Which credit card is best to start with?

A secured credit card or a student credit card can be ideal starters. Secured cards require a deposit, reducing the risk for lenders, making them more accessible for those new to credit. Student cards, designed for college students, often have lower requirements and might offer rewards for good grades. Both are great for building credit, just make sure to pay on time and keep your balance low. 

How to pay off credit card debt?

Start with a budget to see how much you can allocate to debt repayment. Consider the snowball method, paying off smaller debts first for quick wins, or the avalanche method, targeting high-interest debts first to save money in the long run. If possible, consolidate your debts with a balance transfer card or a personal loan to lower your interest rates. 

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Written by

Host of Netflix's "How to Get Rich", NYT Bestselling Author & host of the hit I Will Teach You To Be Rich Podcast. For over 20 years, Ramit has been sharing proven strategies to help people like you take control of their money and live a Rich Life.