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Guest Post by Orlando Rodriguez With so many options for credit cards floating around these days, how do you find the one that works best for your needs? If this is your first time getting a credit card, it can be a huge decision that’ll certainly have an effect on your finances. There are a lot of terms and conditions you need to understand before moving forward. And figuring these out is a daunting task in itself. But that shouldn’t turn you away from the benefits of getting a credit card. Once you’ve narrowed down your top choice for a credit card, now comes filling out an application. While it may seem a little overwhelming, it’s not as complex as you may think. First, you should consider a few factors about your personal finances that impact whether you should apply. Here are the top four things to know before applying for a credit card: Start small Make sure you can pay on time Know the risks Learn from rejection 1. Start small If you’re new to credit, it might be difficult to qualify for cards with lower interest rates and big rewards programs. Your search should start with cards available for people with little to no credit history. However, that doesn’t mean you won’t reap certain benefits. Everyone needs to start somewhere when building up your creditworthiness. So, it’s a good first step to take. Try looking into card offers that help those with no credit or bad credit and find the options that work best for you. Often, secured credit cards have refundable deposits and don’t require a minimum credit score or history to qualify. This makes it easier to get the card and lets you choose your credit limit, making it useful in your budgeting. Even cards you prequalify for could be a good option, as well. These usually have a good idea of what’s in your credit report. And while you’re not guaranteed approval, you may be more likely to qualify for these than other cards. 2. Make sure you can pay on time Missing a credit card payment is one of the worst credit card mistakes you can make. Before applying, consider your finances. If you’re already struggling with other debt, including credit card debt or collections, the last thing you should do is attempt to open another credit card. If you need to open another card, one option is to look into getting a balance transfer credit card. This means you can transfer existing debt to the new card, potentially saving you money on interest repayments. Keep in mind, though, that the new card might have different rates and minimum payments. There can also be certain limits on how much time you have before paying off a balance without interest. Make sure you pay your bills on time to avoid additional fees. 3. Know the risks Fees and penalties differ between credit card issuers. Study these carefully and refer back to your financial standing before continuing. While some cards with high fees or no credit limit offer valuable rewards programs, having to pay so much in interest might not sit well with your budget. Some of the main factors you should look at include the following: Annual Fees Balance Transfer Fees Interest Rates Foreign Transaction fees Annual Percentage Rate (APR) Apart from these, look at what the credit card issuer offers just for opening a new card. Some might offer one-time cash bonuses or immediate cash back on purchases. However, read the fine print to determine how these work and whether you have to spend a certain amount for the reward to activate. The last thing to consider are penalties for missed payments. You’ll end up paying more interest on what you owe, but there are other factors that do a lot of damage as well. For one, missing payments will bring your credit score down. This, of course, has a negative effect on your financial future. It can lead to a reduced score, which means you won’t qualify for other credit cards or even mortgages. 4. Learn from rejection Getting denied for a credit card can be a huge letdown. For those with no established credit, the hurdle gets even bigger. But once you receive an official denial letter, it should lay out the reasons why you were denied, and you can use that as a learning opportunity. Sometimes, the rejection can be as simple as you don’t earn enough income, you don’t have a credit history, or you have other debts damaging your creditworthiness. This feedback from the credit card issuer is helpful for many reasons. First, it lets you know what’s preventing you from getting a certain card. This, in turn, allows you to divert your efforts into other cards for which you’re most likely to qualify. And it also helps you know which areas of your credit profile you need to focus on to improve your score. With this information, you can then change your approach and aim to apply for cards you can realistically qualify for. The bottom line While a credit card offers a convenient and benefit-rich alternative to spending cash, it can also be an easy way to accumulate debt. For that reason, before applying for a credit card, understand your current needs and whether having a credit card aligns with your long-term financial goals. Gather as much information as possible and determine if the benefits outweigh the costs. Credit cards offer a lot of incentives that draw you in, like cash back or travel rewards. But you need to know how to manage your credit properly or it could hurt your finances for years to come. Make sure you know your options and address any questions and concerns first. As long as you stay informed, you’re more likely to make the right decision and get rewarded. Orlando Rodriguez is a writer and content specialist for Credit.com dedicated to creating timely, factual, and eye-catching content. He completed his undergraduate work at the University of Utah focusing on Film and Media Arts. And he’s used his knowledge base in filmmaking and screenwriting to craft stories that enrich and inform. He’s written blogs and journalistic content for many different industries, and narrowed down his niche to the financial industry for the past two years. In his off time, Orlando enjoys reading and writing more about the arts.
How many credit cards should I have? Maybe you already have one or two credit cards and are wondering if you should get one more. Or maybe you already have a handful of credit cards and wonder if you have one too many. If this is a question you’ve asked yourself time and time again, the truth is that there isn’t a perfect answer. According to the Experian 2020 Consumer Credit Review, the average American has four credit cards. Whether that seems like too little or too many, it is important to ask yourself some key questions to determine how many credit cards you should have. What types of credit cards are available? How often can I apply for a credit card? Will applying for multiple credit cards affect my credit score? What are the pros of having multiple credit cards? What are the cons of having multiple credit cards? How many credit cards should I have? To answer these questions, I’ve turned to experts and consumers alike, allowing you to make a more educated decision about whether you should add another credit card to your wallet. What types of credit cards are available? When it comes to credit cards, there are a lot of options available to you. You’ve got your rewards cards, retail cards, business cards, student cards, balance transfer cards, and cards specifically designed for building/rebuilding your credit, to name a few. Knowing what types of credit cards are available is key to strategizing how you would use specific cards in order to build your credit and/or maximize rewards. Based on reviews left by credit card consumers on BestCompany.com*, the following types of credit cards were mentioned most often, suggesting that they are a popular choice among consumers: Cash back reward cards Travel reward cards Retail cards Student cards These findings are consistent with other surveys and statistics, reporting that 60 percent of Americans have a cash back card. Retail credit cards are also a popular choice, with 40 percent of Americans owning one; according to customer reviews, the most popular retail cards include those for Costco, Amazon, Best Buy, and Walmart. In reviews, 8 percent of customers also mentioned how they liked that their credit card was accepted everywhere, even internationally. The majority of these reviews were speaking about Visa credit cards, but this suggests that having a widely accepted card is important to consumers, particularly when traveling. search Based on combined data, we would recommend you have these credit cards in your wallet: A cash back rewards card A retail card A card with wide acceptance (for example, Visa) Of course, the types of cards that you should carry will depend on your specific needs. If you aren’t faithful to a particular retailer, then a retail card would not make sense for you, and if you don’t travel frequently then you may not have to worry so much about your cards’ acceptance in foreign places. *Review data is taken from a sample of 400 credit card customer reviews. How often can I apply for a credit card? Technically, you can apply for a credit card as frequently as you’d like. But, it is important to keep in mind that this could be a red flag to credit card issuers if they see that you have recently applied for multiple credit cards. Expanding on this point, Andrew Schrage, CEO and cofounder of Money Crashers says, “[Credit card issuers] see a high application rate as a sign the consumer is overextended or could be soon.” Will applying for multiple credit cards affect my credit score? Yes, your credit score will likely be affected by applying for multiple credit cards, especially if done all at one time or in close succession to one another. “This is one of several factors that can affect your FICO and VantageScore credit scores, although it’s not as influential as your payment history or credit utilization,” says Schrage. “The effect also doesn’t last as long as some other adverse credit events, such as delinquencies — a year or two, compared with seven or more. But this is one more reason not to apply for every credit card that catches your eye.” It is important to note that when you apply for a credit card, generally your credit score may temporarily drop. This isn’t necessarily something to worry about, but it may make it more difficult to be approved for another credit card at that time, or for any other type of loan. While there are many factors to consider when applying for additional credit cards, one important thing to consider is whether the cards you are applying for have an annual fee. Many cards do not, but if you are planning on opening multiple credit accounts, it would be wise to weigh this fee, especially if more than one of your cards has one. What are the pros of having multiple credit cards? If you are committed to being responsible with your cards and keeping track of what each is used for, having multiple credit cards can be a great way to maximize rewards, save more money, and improve your credit score. Here are some specific benefits of having multiple credit cards: Greater convenience and flexibility Increase your credit score Increase your credit limit Maximize rewards Greater convenience and flexibility Multiple credit cards can ensure that you’ll never be left awkwardly standing at the till when your card isn’t accepted. Although the majority of credit cards are accepted at most retail locations, it can be helpful to have a mix of credit cards in case one is declined. In addition, multiple cards can help when you run into large or unexpected expenses as you’ll be able to split costs across multiple cards, saving you from eating up or exceeding your credit limit on just one card. This allows you to keep your credit utilization rate low, which can have a more positive impact on your credit overall. However, you should be careful in how you're splitting costs on multiple cards. It is not advised to max out one card and then out the overflow on another, as this could still increase your overall credit utilization. So, you might want to try to split costs in a way that will keep your balance low on each card, of possible. Increase your credit score Generally, your credit score is calculated on a handful of important factors. Your FICO score, perhaps the most common credit score used and referenced in the industry, is calculated based on these factors: New credit (10%) Credit mix (10%) Length of credit history (15%) Amounts owed (30%) Payment history (35%) Amounts owed is a broad category that includes your credit utilization ratio, which is an important factor that can speak to the benefit of having multiple credit cards. Nathan Grant, Senior Credit Industry Analyst at Credit Card Insider explains: “When used responsibly, a new credit card can help you improve your credit scores over time. More credit cards means more available credit, which makes it easier to keep your credit utilization low.” It is important to be mindful of your credit card utilization, since a lower rate shows lenders that you’re using less of your available credit, which can be an indicator to lenders that you aren’t overspending and are doing a good job of managing your credit. This can be harder to do if you have just one credit card, as it is much easier to spend up to your credit limit on one card. Instead, splitting spending across multiple cards keeps your utilization rate low on all cards, which lenders will see as responsible use on multiple credit cards. Increase your credit limit Similar to monitoring your credit utilization ratio, having multiple credit cards increases your available credit. This can be helpful if you feel you may need a higher credit limit than what you get with one credit card while also helping you manage your credit utilization. Maximize on rewards Credit cards often come with some sort of rewards or points that can make it more worthwhile to use. Based on your lifestyle and needs this can be beneficial, as it can help you save more money on travel or earn more in cash back, for example. It is important to assess your spending habits and see where a specific rewards card could prove to be most worthwhile. What are the cons of having multiple credit cards? Multiple credit cards means that you have multiple credit lines to keep track of, which can be challenging and potentially lead to missed payments, which will only hurt you in the long run. Here are some specific drawbacks of having multiple credit cards: Easy to lose track of cards Easy to carry multiple balances Increased risk of spending more than you can repay Applying for more credit could affect your credit score Easy to lose track of cards This may seem self-explanatory but the more cards that you have, the more difficult it could be to keep track of them all. “If you have too many cards, you could lose track of which ones should be used for which types of spending and struggle making your payments,” Grant says. “ If used irresponsibly, you could not only get caught up in a quicksand of debt, but can severely damage your credit scores. Even a single late payment can remain on your credit reports for up to seven years.” Easy to carry multiple balances Just like how having more cards could make it difficult to keep track of them all, more credit means it would be much easier to carry multiple balances, which could be more costly to you in the long run. Carrying a balance may not only increase your credit utilization ratio, but it could also result in you getting hit with interest. Increased risk of spending more than you can repay It is encouraged to pay off each credit card balance in full each month. If this seems like something that you may not be able to manage easily, or if you run the risk of using more credit than you can pay back, then it would be wise to carefully assess whether or not you should get another credit card. If you spend up to your credit limit on one or multiple cards, or even spend more than you can reasonably afford, you run the risk of falling into high-interest credit card debt, as you will be charged daily accruing interest each month, for what you aren’t able to pay off. Don’t let this scare you if having multiple credit cards makes sense according to your circumstances, but always seek to be mindful and responsible in your spending to avoid debt later on. Applying for more credit could affect your credit score “Every time you apply for a new credit card a hard inquiry will lower your credit score a bit, so don’t apply for many cards in a short period of time, especially if you don’t know whether you have good odds of approval,” says Grant. If you are applying for multiple cards all at once, this is important to keep in mind, as your credit score could take a hit, making it more difficult to be approved for other credit cards. Thus, it would be advisable to plan out which cards you wish to apply for and when, accounting for a dip in your credit score upon applying for a new card. How many credit cards should I have? After all that, here we are, back where we began, attempting to answer the big question of how many credit cards you should have. Even after considering rewards, credit utilization ratios, and FICO scores, it all comes down to your needs and how you’ll use your credit cards versus the number of cards you can fit in your wallet. Carefully consider your financial situation, needs, and spending habits before jumping into applying for more cards.
As of November 2019, there were 374 million open credit card accounts in the United States, with approximately 70 percent of the population carrying at least one card. That’s a lot of credit cards. How do millions of consumers know which card to choose? It’s not like there’s a “one-size-fits-all” when it comes to credit cards. In fact, there are so many options out there that there might be multiple options that could work for you. So how do you narrow it down? Have no fear. To help you choose a credit card, we took a look at what consumers want in a credit card and card issuers in particular, in addition to consulting industry experts and a credit card company, to get a bigger picture of how to narrow down the search and pick the best credit card. Let’s dive in! What consumers say What the experts say What a credit card company has to say We wanted to know what consumers felt was most important when looking for a credit card; so we took a look at some reviews to see what consumers mentioned most often. The top five factors mentioned by consumers include customer service, rewards, interest rates, wide acceptance of cards, and card security and protection. Other factors mentioned include fees, company trustworthiness, and credit limits. Customer service Rewards Interest rates Wide acceptance Security and protection *This data, and all subsequent findings, are from a sample of 600 credit card company reviews on BestCompany.com. Customer service Approximately 35 percent of consumers mentioned customer service in their review. On BestCompany.com, we specifically ask consumers to rank their experience with customer service; but it is interesting that consumers consistently commented on their customer service experiences - good or bad - in their written review. This suggests that consumers are concerned about the company that they will be working with, and not just rates, rewards, and fees - very important factors to consider when looking for a credit card. From our sample of reviews, the top mentioned companies for great customer service are Capital One, American Express, and Chase. Rewards After customer service, consumers mention rewards more than other factors. A rewards credit card is a great perk, allowing consumers to generate cash back, points, or miles the more they use their card. Many consumers mention cash back rewards, suggesting that this is the most popular reward option to look into as it is a great option for most everyday purchases. If you travel often, a travel rewards card or a hotel rewards card could be a great option for you, although a cash back card could still be used if you don't want to deal with travel rewards programs. But the best option for your wallet depends on your preferences and lifestyle. "I always get right through to a real person when I call in. Their vacation protection, price drop protection, and extended warranties have all saved me money and been pretty painless experiences. Ultimate rewards is also a really seamless experience that provides tremendous value when transferring to travel partners." — Andrew, Chase credit card review, July 8, 2020 From our sample of reviews, the top mentioned companies for rewards are Chase, Discover, and American Express. Interest rates Consumer reviews mention interest rates more than not, which is indicative that this is an important factor to consumers. With any type of borrowed money, it is a common practice to try to get the lowest rates possible as this can save you more money in the long run, although it isn't necessarily common to get the lowest rate available. It is important to keep in mind that your credit history, income, debts and history with the company are often deciding factors in the interest rate you will receive. "Discover card has excellent customer service, competitive interest rates and no annual fee. I have had my Discover card for many years and have never had any problems with it." — Beverly, Discover credit card review, February 5, 2020 It is important to note that most reviews comment on how interest rates are high, no matter which credit card issuer they are using (although most lenders offer a variety of cards with varying rates, so this may not be an accurate representation), as credit card interest is generally higher than other borrowing methods. But, from our sample of reviews the top mentioned companies for competitive interest rates are Discover, Visa, and Capital One*. *Interest rates are contingent upon your credit score and financial background. Thus, if you have a low credit score, you will likely receive higher interest rates on your credit card. Wide acceptance Another important credit card factor for consumers is where the card is accepted. For the majority of consumers, it is important to them that their card is accepted anywhere, even globally. "Love that Visa is accepted pretty much anywhere. Trustworthy company, very convenient, and like the perks." — Lacey, Visa credit card review, February 22, 2020 From our sample of reviews, the top mentioned company for wide credit card acceptance is Visa. Security and protection Another factor frequently mentioned by consumers in their credit card reviews is security and protection. Consumers want to ensure that their information is safe and that there are protections in place against credit card fraud. It is important to research what security credit card companies have in place to protect against credit card fraud, as it has risen 161 percent since 2015, with 45,120 cases reported in the first quarter of 2020. From our sample of reviews, the top mentioned companies for positive card security and protection experiences are Capital One, Visa, and American Express. Top Credit Card Companies on BestCompany.com Learn more about the top ranked credit card companies on BestCompany.com to see if there is a good fit for you. Learn More Choosing a credit card can be a challenging and time consuming process. Especially for first-time borrowers, it can be difficult to know what's important when looking for a credit card and how different cards compare to others. We asked some experts what they suggested when looking for a credit card, outlining some helpful tips and insights to make the process easier. Look at your lifestyle Pay off existing credit card debt Consider fees, rates, and credit limits Choose Your Rewards Look at your lifestyle Before you even begin to look at different credit card options, it is important to take some time to first consider your lifestyle and what you'd be using your credit card for. This will not only help narrow down your search, but it can also help you determine what kind of rewards would be best suited for you. John Davis, founder of ScoreSense, expands on this point: “The first step to choosing the right reward card for you is to look at your lifestyle, or more specifically, your spending habits. Categorize your monthly spending over a year, then compare to the rewards or rotating rewards according to your monthly spending forecast.” Another important aspect of reflecting on your lifestyle is considering your credit score and finances, two factors that pull heavy weight on what interest rate and credit limit you could receive on a credit card. For example, if you have bad credit and want to build your credit, you could look into getting a secured credit card, or if you are in college you could look into getting a student credit card. Choosing the right card based on your needs and financial background is important because it could save you money on interest, and save you from greater stress in the future. Pay off existing credit card debt If you're looking for your first credit card, this won't be a relevant step for you. But, if you are a consumer looking for a new or additional rewards credit card to add to your wallet, it could be in your best interest to take a look at your existing credit cards and to see if you have any outstanding debt to payoff. “Pay off any credit card debt before you worry about rewards. If you are carrying a balance on any credit cards, you should pay those off first or focus on low interest-rate credit cards,” says Erik Budde, founder of GigaPoints, a data-driven credit card comparison tool. “Any rewards you earn will pale in comparison to the interest that you may be paying.” Consider fees, rates, and credit limits An important step in choosing a credit card is to consider and compare fees and rates various credit cards. Take the time to assess your lifestyle and how you'd use a credit card as these factors affect your decision, especially in terms of interest rates. Nishank Khanna, CFO of Clarify Capital speaks to this point: “If you’re apt to carry a balance, interest rates might be important. If you’re likely to use your card as a substitute for debit and you plan to pay your balance off regularly — interest should be a moot point. Instead, focus on high-value rewards that can subsidize your interests and offer benefits that make sense for your lifestyle.” In addition to interest rates, it's important to consider the fees applied to some credit cards: annual fees, late payment fees, cash advance fees, balance transfer fees, foreign transaction fees, etc. You may find a great rate with a certain type of card, but could then get hit with large fees, so do your homework. The credit limit you receive on a credit card is dependent upon your credit score and finances, as well as the card issuer, but some cards offer much higher limits than others. If you know what you'll be using the card for, it will be much easier to gauge the credit limit you'll need. It is important to note that you won't likely be able to determine and/or compare credit limits upfront. Choose your rewards In general, there are two types of credit card rewards programs: a card issuer programs, offering cash back or points, and travel rewards programs, offering miles or points. Cash back rewards earn you a certain cash amount on eligible purchases, which can save you some money in the long run. Point rewards, on the other hand, give you a certain number of points per dollar spent. These points are most often redeemed for travel costs, such as airline tickets or hotels, which can also be redeemed through travel miles. We connected with Meera Sridharan, vice president of rewards and product strategy at Discover, to ask some questions about how to choose a credit card, especially for first-time borrowers. Q. What things are important for consumers to consider when looking for a credit card? What should they be looking for in a credit card? A. Consumers should consider looking for credit cards that offer flexible rewards that fit their lifestyle and spending habits. All Discover credit cards offer the ability to earn cash back rewards on every purchase, and for first-year card members we automatically match all the cash back you’ve earned at the end of your first year. Beyond rewards, consumers should also consider whether there is an annual fee and if the credit card offers complimentary benefits. For example, Discover provides a robust suite of free benefits, all at no annual fee on any card, including Credit Scorecard, which shows your FICO credit score, Freeze it, an account on/off switch to prevent new purchases in seconds, and Social Security number, Inquiry and New Account Alerts, which can help you protect yourself from identity fraud. Q. For first-time borrowers, what are the best rewards to consider? A. First-time credit card holders should look for cards that offer rewards that fit their lifestyle and spending habits. Q. When should a consumer start looking into getting a credit card — in college, after college, etc.? A. Getting a credit card while in college can aid in establishing a credit history. Building good credit while in school can help you down the road when you’re looking to buy a car, house, or qualify for other credit products. Q. What is the best Discover credit card for first-time borrowers? A. We have several different cards for first-time credit card holders and each provides the ability to earn cash back rewards on every purchase while building your credit history. Q. What is the process to apply for a Discover credit card? A. When applying for a Discover credit card, you’ll need to be at least 18 years of age, have a Social Security number, U.S. address and U.S. bank account, and provide all the required information in the online application. Applications are taken 24/7 on Discover.com. Learn more about Discover's credit card options. The final word Choosing a credit card can feel daunting, but it doesn't have to be. Hopefully these insights can help ease some stress. Good luck in your journey to choosing the right credit card for you! Top Credit Card Companies on BestCompany.com Learn more about the top ranked credit card companies on BestCompany.com to see if there is a good fit for you. Learn More