How to figure out which credit card is right for you

We simplify the mind-numbing confusion around credit card requirements.

Getting your first credit card is an exciting part of being an adult. There is a bit of a thrill in scanning that plastic money and indulging in some retail therapy or treating friends to brunch. On the flip side, you’ve also probably heard that there’s a big financial responsibility that comes with owning that piece of plastic. We know the topic of finances can be kind of boring, but trust us when we say it’s best to be informed on the basics of getting a credit card before you think it’s a bottomless pit of money. So let’s discuss credit card 101, what a credit score is, the different types of credit cards available on the market, and which one is right for you.

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Credit card 101

Just in case you’re unsure, let us clarify exactly how a credit card works. Basically, credit card companies provide a customer with a line of credit, or a credit limit, to make purchases. You can think of it as a small loan that has to be paid back within a certain amount of time. 

Obviously, before you start making purchases, you have to be approved for credit. Companies factor in your credit score, income, and rent or mortgage. A credit score is a numerical rating in which a person’s creditworthiness is determined based on the amount of credit they have and the age of their credit. 

Credit scores are generally categorized numerically as either poor (300-579), fair (580-669), good (670-739), very good (740-799), and excellent/exceptional (800-850). The better you rate on their scale, the higher your score will be. Some things that might affect a credit score are:

  • Established credit
  • No credit
  • The amount and types of loans you have. These are either installment loans (car loan, personal loan) or revolving loans (credit cards or other lines of credit).
  • How long the loans have been open
  • Bill-paying history
  • Current unpaid debt or bills
  • Credit usage
  • New credit card applications 
  • Debt sent to collection agencies
  • Foreclosure or bankruptcy

If you’re just starting out, you may not have accrued any credit. A good option to escape the no credit trap is with a secured credit card. With this type of card, you put down your own money and that becomes your line of credit. Plus, after some time, companies will review your score and payment history to see if you are eligible for an unsecured credit line. If so, your deposit will be returned and your account will become unsecured.

Credit bureaus like Equifax, Experian, and TransUnion, compile your credit report on a monthly basis, looking at credit account information, hard and soft inquiries, and other financial snapshots which inform your creditworthiness. FICO and VantageScore use the information from the report to generate a credit score. This information is reported to lenders and creditors.

Different types of credit cards

So you’re ready to apply for a credit card, but which one is the best one for you? It really depends on how the credit card companies see you and what you want out of the credit card for yourself. We already talked about secured and unsecured credit cards; see below for more options.

Zero to low-interest rate cards: Credit card APR, or annual percentage rate, is the interest that is charged on loans and, in case you are struggling to make ends meet, a card with little to no APR can help. However, it’s important to remember that these are usually promotional offers and the APR will increase eventually.

Retail cards: These cards are either solely backed by a retailer (and a bank) or are backed by one of the major credit card companies and are used at particular stores for purchasing items. It’s important to note that retail cards often come with high interest rates.

Cash back rewards cards: These types of cards let you accrue points as you make purchases. They will usually assign a certain percentage that will be added to your statement, often referred to as “cash back”. Once the points are added to your account, they can be redeemed to pay your monthly statement, get cash back, or buy gift cards.

Travel rewards card: These cards have programs where you can accrue miles when you use them for purchase. For instance, for every $1 you spend you can accrue one mile for travel. With enough spending power you can accrue miles that can be used to book your next vacation.

Balance transfer card: If you’re dealing with debt (and let’s be honest, a lot of people are) you can transfer that debt to a zero or low APR card, for a certain amount of time. This can help you get back on track with paying down your credit card balance.

Illustrated list talking to different types of credit cards

Protecting yourself from credit card debt

While having the option to use credit cards for purchases is great, it’s really easy to fall into bad spending habits and get into debt. Interest can start to accrue onto your bill if you can’t keep your balance down, and then it gets hard to catch up.

And what if something happens to you and the credit card is left open with a high bill? It’s possible that someone could be left to take care of that bill. If you had a cosigner or guarantor on your credit card, they will be responsible for paying that off. Also, depending on the state you live in, your spouse or partner could be on the hook for it too.

So what does this have to do with life insurance? Glad you asked. Life insurance is a good way to protect your family from having to deal with this debt if the worst were to happen to you. If you die, they can use the death benefit payout to cover the outstanding bills you left behind, credit card debt, and beyond. This could ensure your family’s protection and put them on a path to financial freedom.

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