In the modern age, going without a credit card is the equivalent of saying you go without eating. It’s possible for a time, but after awhile, it’s going to start breaking you down. Credit is to your financial standing what food is to your body, and the analogy holds true in many different areas.
Just as healthy foods, and balanced portions, can improve your overall physical health, making good decisions with your credit, and having the right type of credit card, can improve your financial life immensely. But the opposite is also true: poor decisions with your credit will wreck your financial health as quickly as a large pizza will destroy your diet, and it’s much harder to recover from than a bad reading on the scale.
For many people, the starting point to their financial life is when they receive their very first credit card. Prior to that, most people, especially fresh high school graduates, don’t have any financial history to speak of. For them, what they choose for a first credit card, and how they use it will, will determine whether they have a successful, healthy financial life, or will struggle for years to come.
But with so many options on the market, it can be hard to choose a particular credit card to suit your needs, and fit your lifestyle. The following guide will be a valuable resource for you as you shop, and choose the right credit card for you.
Credit Card Essentials
Before we discuss the specific types of cards that you can apply for, there are a few key factors, that apply to all credit cards, you need to be aware of. No matter what credit card you choose, you need to first look at the following three elements, before you consider anything else:
Fees
First and foremost, look to see if there are any associated fees with the credit card. Certain credit cards have usage or renewal fees, especially ones with excellent cash back or rewards programs. If you’re not willing, or unable, to pay these fees each year, then this will be a deal breaker.
Interest Rates
Interest rates are the charges associated for each use of your credit card, as well as how much you’ll have to pay in addition to your remaining balance, if you don’t pay off the full amount each month. Interest rates vary widely from creditor to creditor, so make sure you understand how your interest rate will work.
Credit Limit
Your credit limit is how much you can charge onto your credit card in a given period. Like interest rates, this number will change extensively from card to card. You’ll want a credit limit that allows you to buy everything you want, while remaining at 35% or less of your limit, in order to avoid damaging your credit score.
Bank Credit Card
The most common type of card on the market, these cards are simple affairs that have reasonable credit limits, fair to moderate interest, and tend not to have annual fees. For people just living their life a day at a time, or who don’t make extensive, extravagant purchases, these cards are more than enough to shop comfortably.
The only real downside of these cards is that they won’t do anything extra for you. You can make your purchases, and so long as you’re responsible, you’ll keep a decent credit score, but you won’t get anything in the way of discounts at stores, cash back, or rewards.
Gas Credit Card
As the name suggests, gas credit cards are intended to be used primarily for filling up your tank at the gas station. They often include perks like saving you money per the gallon, or offering you cash back once you’ve reached a certain amount. If you own a gas guzzler, or travel extensively for your job, a gas credit card may be the perfect choice for you. The best gas cards will also give you discounts or points at other stores as well.
Bear in mind: most gas cards tend to have high annual renewal fees, so unless you purchase a lot of gas month to month, you may find you’re spending more than you’re saving.
Cash Back and Reward Points
These types of cards do exactly as they advertise: they give you cash back, or rewards points for certain stores, whenever you swipe your card. These cards can be an excellent choice if you are a frequent shopper at any of the stores that are included in the program, allowing you to make extensive savings with frequent or bulk purchases.
However, just like gas cards, these usually have annual renewal fees, and it can be tough to make the benchmark to qualify for your rewards. You may find that you have to spend upwards of $1,000 to even start accruing points, and hundreds if not thousands more to earn enough points to make a difference. This can quickly drive you into debt, so unless you know you can afford them, and they’ll save you money, they’re best avoided.
Prepaid Credit Cards
These credit cards are different from any other type in the sense that they don’t have a credit limit, don’t require a credit check, and you have to load your funds before you can use them. This type of card is the perfect intro card for a younger person, like a high school student, because it will still function just like a normal card, but without the danger of overdrafting, missing payments, or accumulating interest.
The obvious downside is the fact that once your funds are exhausted, you can’t use the card again until you load more. This is great for parents trying to help their high school or college-age children learn to spend responsibly, but if there’s an emergency, and you don’t have enough funds on your card, you’re out of luck. This type of card won’t help your credit score either, so if building credit is your goal, you need to consider a different card.
Travel / Airline Miles Cards
A staple for business professionals and travel enthusiasts the world over, these cards allow you to accumulate points or credit towards your next plane ticket, and many include rewards or discounts for stores that specialize in air travel products.
In the same vein as gas and rewards cards, these credit cards can be expensive to maintain, and you’ll need to swipe frequently in order to qualify for the perks they offer. These are really only suitable if you travel extensively for work or pleasure.