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What is the Best Credit Card For You?

by Jason on November 3, 2010

The best credit card?  Well, it depends of course…

Who doesn’t want a travel rewards card that spits out free flights and has a 24 hour concierge?

And who doesn’t want a low APR card with no fees and unlimited 0% balance transfers?

Unfortunately nothing like this exists.

Out of the thousands of credit cards in America, each one has a different set of features, and trade-offs that go along with them.

So to filter through this universe of credit and truly understand which is the best credit card choice for you, you first have to understand yourself.

So let me ask you, “How do you use credit?”

•re·volv·er•

Someone who holds a credit card balance month-to-month, using the revolving credit line rather paying it off each month.

If you fall under this category, your main priority should be keeping interest rates and fees as low as possible.  Cards with no annual fees aren’t hard to come by, and the lower the APR you can manage, the better.

Forget about those rewards I mentioned, because those cards generally come with higher rates, which would wipe out any money you make from the rewards.

If you are already carrying balances on other cards, or any other type of debt that you want to consolidate at a lower rate, then a 0% balance transfer offer would probably be the best credit card for you.

These kinds of cards will let you go interest-free for anywhere from 6 to 21 months, just make sure you’re careful about the ongoing rate that will take effect after the intro is over. If you think you can get rid of your balances before the intro ends (be honest!), then it’s not an issue.

Otherwise, you need to grab a calculator and work out what your effective finance charge will be over a longer horizon.

Also realize that these cards generally charge 3% of more of the balance as an upfront fee, so you also have to calculate whether you will actually save money by going this route.

Now, if you don’t have any balances to transfer, then the purchase APR that will be charged on future spending is your only real concern.

Very much like the balance transfer offers, there are cards that offer initial periods with no interest. Also like balance transfers, these cards can come back to haunt you after the honeymoon period if you don’t pay attention to the new rate.

So again, a little math will help you figure out how much you’re actually paying over a longer time period.

•trans·ac’tor•

Someone who uses credit cards solely as a convenience, and pays off the balance each month.

A transactor’s only focus should be keeping rewards high. Many people are opposed to paying annual fees, but that really isn’t important if you can get juicier rewards to make up for the fees.

Just take these fees into account when deciding how much you will realistically make in rewards. And when deciding on the best credit card with rewards that is right for you, there are three important features you should be take into account.

The first feature is the introductory bonus. Just like how low interest credit cardshave low intro APRs, cash back and rewards credit cards often give upfront bonuses of extra miles or points.

In many cases, these bonuses will cover any annual fees by themselves, and might even get you free flights or hotel nights. The only question is whether you’re getting the bonus at the expense of a lower reward rate.

The next important feature is the base rewards rate. The industry standard here is usually something like 1% cash back, or 1 mile per dollar, but some of the better cards actually pay 2% flat rewards on all purchases.

Just be aware that some may require you to hit a certain minimum level of spending before you are eligible for the full rewards, so they’ll say things like, “Earn 0.5% on the first $6,500 per year and then 1.25% after”. This means that your base rate may be lower than 1%, depending on how much you manage to spend.

Finally, the real meat is in the bonus rewards that some cards pay for purchases in categories like travel, dining, groceries, and drugstores.

A huge number of different bonus categories exist, and these types of cards can pay up to 5% rewards for bonus categories.

So when you pick a card, make sure it matches your spending habits (so don’t get a gas credit card if you don’t own a car). Of course there’s always a catch –bonuses often have caps, and most don’t give bonus rewards for purchases at warehouse stores like Costco and Sam’s Club.

This is a guest post from Tim Chen, CEO of NerdWallet. NerdWallet helps you find the best credit card, sorting and filtering nearly 600 credit cards by best rewards and lowest APRs.

Tim also writes about credit cards for the Forbes Moneybuilder Blog, Huffington Post, and the Christian Science Monitor.

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