Start by figuring out what is most important to you. Then consider using the GigaPoints Analyzer tool.
There are more than 1 billion credit cards circulating in the United States. And when you’re in the market for a new card, it can seem like there are almost that many to choose from.
Picking the right one from the crowd can be a confusing process, even for people who are financially savvy. It’s certainly not a life-or-death decision, but there are financial consequences to having the wrong card. For starters, you can miss out on hundreds—and possibly thousands—of dollars in rewards and benefits each year.
Here’s how not to choose your next credit card:
- Default to the one your bank offers, because it’s easy.
- Do an online search for the “best” card and sign up for whatever tops the results—in many cases, someone has paid for that placement.
- Get an airline card because it was promoted on your flight.
- Sign up for a card just to get a big welcome bonus and automatically keep it forever.
You want to pick the card that’s best suited to your needs and your spending patterns—not the one that pays bloggers the biggest kickbacks, or makes banks or airlines the most money.
At GigaPoints, we’re all about using technology to match customers to the cards that will earn them the most rewards for the way they spend. It’s one of the biggest factors in choosing a new card, but card-seekers will also want to take into account fees, credit requirements and (if they might carry a balance) interest rates.
Here are the seven factors to consider when selecting the next addition to your wallet.
Many—maybe even most—credit cards now pay customers some sort of rewards on their spending. Rewards can come in many forms, but the main ones are cash back and points (sometimes called miles).
The first thing to figure out is which currency you prefer. Cash back tends to be simpler, but points can be more valuable. We break down the pros and cons of each in this article. You should also consider what kinds of points you’ll actually use—airline miles aren’t terribly useful if you never travel.
Then you’ll want to look at how much those rewards are worth. Credit card companies don’t make it easy to figure out how you’ll earn. Some cards offer different rewards for different kinds of spending—say, 2% for gas and 1% for everything else. Others pay extra rewards on certain categories of spending and switch those categories around regularly. Still other cards pay more rewards once you’ve spent a certain amount of money.
Just as important: Not all points have the same value. In fact, there can be huge gaps in how much different loyalty currencies are worth. For instance, GigaPoints estimates Hilton Honors points to be worth about 0.6 cents each, while Chase Ultimate Rewards are worth 1.8 cents per point. Would you rather have 100,000 points that are valued at $600…or $1,800?
You can calculate how much you might earn from a card with a year’s worth of statements, an abundance of patience and a knack for data entry. You can also just guesstimate your spending. But this is exactly why we built GigaPoints. Our algorithm does the math for you, looking at how you spend over the course of a year, and comparing those patterns to the rewards programs for dozens of different credit cards. We then show you how they stack up. You can read more about how it works, then try it for yourself.
2) Welcome bonus
In addition to ongoing rewards, many credit cards offer welcome bonuses to lure new customers. Like rewards, these bonuses most often come as cash or points/miles. It’s nice to get a big welcome bonus with a new card. But for most consumers, it’s not as important as the rewards you’ll earn as you use a card over the years.
Cards that charge annual fees tend to have more generous sign-up bonuses. The higher the fee, the bigger the bonus. (Secured cards and cards aimed at consumers who are building—or rebuilding—their credit generally don’t offer bonuses.) You’ll want to figure out whether the fee is worth it for the size of the bonus.
To qualify for a welcome bonus, card issuers often require you to spend a certain amount of money after opening your account. (For instance, 50,000 points if you spend $3,000 in the first three months.) That’s especially true for larger bonuses. If that spending requirement isn’t in line with your normal patterns, you may end up spending unnecessarily to get the bonus—not a good financial move.
3) Annual fees
An annual fee is like a membership fee that some credit cards charge each year. It can seem a little excessive, given all the other fees that credit cards can levy. But you shouldn’t reject a card just because it has an annual fee—or because it doesn’t.
Again, it comes down to how you spend. A card that costs $95 might net you $500 in rewards over the first year. At the same time, a $450 card will pay off for some spenders but not others.
The GigaPoints Analyzer takes annual fees into account when it matches users with the best credit cards for their spending, balancing them against the rewards that card can earn. You can try it here.
4) Interest rate
If you’re the kind of consumer who pays your credit card bill every month, you have one less thing to worry about. The interest rate on your card is irrelevant if you never have to pay it.
But if you’re one of the roughly 40% of credit card holders who carry a balance, interest rates matter. One perk that many card issuers offer is 0% APR for new accounts—at least for a while. (If you use the GigaPoints Analyzer, you can filter your results to find cards with Intro APRs.) Most often the no-interest honeymoon lasts for a year, though some cards offer up to 18 months.
You’ll still have to make minimum monthly payments, however. And at the end of the promo period, your interest rate will shoot back up to normal—generally between 16 and 25%. If you’ve got a great credit score, you may be able to pull a lower rate.
5) Credit Requirements
Like the Rolling Stones said: You can’t always get what you want. You may think you’ve found your dream credit card, but the feeling may not be mutual.
Credit card companies use credit scores to decide which customers to take on. They may reject an application because they think the person already has too much debt, doesn’t have sufficient credit history, doesn’t earn a high enough income, and on and on.
There’s usually no penalty for aiming high in life. But when it comes to credit cards, you should choose one that fits your financial profile and avoid longshots. Applying for multiple cards in a short time span can harm your credit score and make your applications even more likely to be rejected.
On top of rewards, there are a slew of benefits available to credit card customers. Depending on the card, you might get free checked bags on flights, rental car insurance, Uber and food-delivery credits, invitations to special events, and so on.
These perks are mostly attached to fancier credit cards like the Chase Sapphire Reserve and American Express Platinum, which also have high annual fees. But less expensive cards have them as well—the no-annual fee JetBlue card, for instance, gives holders 50% off in-flight purchases.
Perks sure sound appealing—and they’re designed to. But at GigaPoints, we value these perks very conservatively, and suggest you do, too. Some perks may not get used, and some only last for a certain amount of time.
For many people, a credit card is simply a financial tool. For others, an upper-echelon credit card can be a signifier, telling people they are successful, discerning, intelligent.
There’s a grain of truth in there. Prestige credit cards aren’t available to just anyone—applicants have to meet credit and income requirements to get them. And a very few, like the American Express Centurion card, are offered by invitation only.
If status matters to you, go for a fancy card. But even if money is no object, you may want to use our Analyzer to make sure it’s the right one.
The Bottom Line
You can choose a credit card without putting much thought into it, but you might end up leaving a lot of money on the table. It’s worth doing some research—and leveraging tools that can help you make a smart decision.