If you have never owned a credit card before, its simple to think that all of them are the same. But, the world of credit cards is actually very diverse and complex. In fact, picking the right credit card that matches your specific needs can be a very daunting task.
But, one thing is sure; Credit cards are used for many different reasons. Be it to help establish credit, supplement finances, or even to simply benefit from the rewards, in this article, we will help you get an insight into what are the things you need to consider when choosing the right credit card.
Secured Credit Cards
Arguably one of the easiest ways to build credit is to get a secured credit card. A secured credit card is a type of credit card with which a cardholder’s cash deposit is used as collateral.
With this practice, applicants can expect quick and nearly-guaranteed approval. Secured credit cards are perfect for consumers who have less-than-stellar credit scores or simply do not have enough credit to qualify for other types of credit cards.
Another type of credit card that is similar to secured credit cards is- student credit cards. This type of credit card is available, mostly to college students, who have not accrued enough credit history yet or have no credit history at all. Much like secured credit cards, student credit cards are easy to get approved for.
Will Secured Credit Cards Help Build Credit?
This all depends on whether your credit card payments are reported to Credit Reporting Bureaus, namely Experian, Equifax, and TransUnion. Consumer credit information gathered by the credit bureaus is what makes up your credit score. If your payments to your secured credit card are not being reported, then no; Secured credit cards will not help build credit.
If you want your credit card to help improve or repair your credit score, make sure the student or secured credit card payments you are making are being reported to the credit bureaus. Additionally, even if your card payments are being reported, it still will not help your credit if you are not making your payments on time.
The Cost Of Getting A Secured Credit Card
Aside from the initial cash deposit required to open a student or secured credit card, there is not much when it comes to the costs. In fact, because these types of cards do not have many great rewards, you can even avoid paying for annual fees.
If you are talking about costs in benefits, however, secured credit cards with lower security deposits to open, may have lower credit limits. Having a small credit limit means you will be eating away at your credit utilization much faster.
Credit utilization is the ratio between the credit you are using compared by the amount of available credit. A high credit utilization ratio will damage your credit score, which ultimately defeats the purpose of getting a secured credit card if you are using it to build credit.
Can I Upgrade From A Secured Credit Card?
This will all depend on your credit card issuer. Find out if your credit card issuer offers options to upgrade from a secured credit card to a better one after you have built a positive and consistent track record.
But why even get an upgrade? Upgrading to a better card could unlock more benefits and possibly even an increase to the credit limit. What’s more, by upgrading to a better credit card option, as long as its offered by the same credit card issuer, you get to keep your credit card account open for much longer.
The older the credit card is, the better it is for your credit score. That is if you are able to keep that credit account in a healthy condition.
Low-Interest, 0% APR, or Balance Transfer Cards
What many consumers hate about credit cards are the additional expenses that come with it. If your ultimate purpose for getting a credit card is to supplement your income, then having expenses pile on top of your other financial obligations because of that credit card is probably not what you would want.
Luckily for you, low-interest, 0% APR, or balance transfer cards allow you to pay off your credit card debt without worrying about interest. Granted, these types of credit cards are difficult to qualify for and will need you to have decent credit already. If you are looking to build credit through credit cards, then these ones are not for you; however, if you simply want or need more funds around, then consider getting these types of credit cards.
Is There No Interest In 0% APR Cards?
There is actually. What is meant by 0% Annual Percentage Rate (APR) on 0% APR cards is you get to enjoy the benefits of having a credit card with the lowest interest possible- but only for a period of time.
After there 0% APR ‘grace’ period is over, the interest rate will change to a much more standard rate. Before getting a 0% APR card, make sure you check if the card allows you an ample grace period to pay off all of your debt with the low rates it offers.
Balance Transfer Credit Cards
Balance transfer credit cards allow you to, as the name suggests, transfer high-interest debt from other credit cards to a low-interest card, which is your balance transfer credit card.
While this sounds wonderful, not all balance transfer cards have the same balance transfer policy. If you decide to get a balance transfer credit card, make sure you understand the fees associated with a balance transfer, the debts you are allowed to transfer, and the limits, if any, to the amount transferable.
Before getting a balance transfer credit card, you also have to make sure that the balance transfer card’s APR is worth it to warrant getting a balance transfer credit card in the first place.
Rewards, Travel, or Cash Back Cards
If you are someone who will regularly use your credit card and would want to receive additional benefits from doing so, then rewards cards are a perfect option for you. Do understand, however, to fully reap the fruits of rewards cards, you will need to regularly use them- though that is not required.
Rewards cards are an excellent option for people who will not have trouble and are not really worried about paying off credit card bills. Not only do these types of credit cards allow you to build credit, given you are consistent on making payments, but also help supplement your financial state while providing you with extra rewards.
Some cards will offer the cardholder travel mileage for every amount they spend, while other cards offer a certain percentage of cashback for every purchase- which is perfect for everyday spenders.
Which Reward Card To Get?
This will all depend on your spending habits and what you would want as a reward. Not all rewards cards offer the same kinds of benefits. So be sure to choose the right rewards card that best suits you.
If you are someone who likes to travel, look for a rewards card that offers you travel points or mileage. If you want to get some money back for the things you purchase, like groceries or gas, then a card with a cashback reward is a better option for you.
The Bottom Line
Credit cards are a wonderful tool to have. But not all credit cards are made equal. If simply getting a credit card will solve some of your problems, then you might be mistaken. Get a credit card that gives you what you need.
Is your credit score preventing you from getting the credit card that suits your needs? Then you probably need to repair your credit. If you are not sure where to start, call us at 888-799-7267 to schedule a Free Credit Consultation.
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