Are you considering a new credit card? There is an endless array of choices and financial services out there for you to take advantage of. So how do you decide which one is right for you?
Owning a credit card can have either a positive or negative impact on your financial situation. How much do you know about the financial institution behind your piece of plastic?
Not all banks are credit card issuers, and not all issuers are banks. A payment network, such as American Express or Discover, can also be a card issuer. In some cases, the card can belong to one payment network but be issued by a different financial institution. It can get somewhat confusing. That is why it is vital to understand what makes up your credit card. The more you know, the more chance you have of making an educated decision when choosing a provider.
What is a Credit Card Payment Network?
Credit Card Networks are the middlemen between the credit card issuer and the merchant. They authorize and process credit card transactions and determine interchange fees. An interchange fee can be known as a swipe fee – a percentage of the transaction cost that the bank charges the merchant every time you use your credit card for purchasing. Some payment networks also oversee cardholder benefits.
The most popular Credit Card Networks are American Express, Visa, MasterCard, and Discover.
What is a Credit Card Issuer?
A credit card issuer is a bank, credit card company, or credit union that provides financial backing to an individual or business owner. You may be able to get both your credit and debit card, from one card issuer. The company accepts the risk of loaning you money while also providing your payment history and credit profile to the credit bureaus.
A credit card issuer is responsible for multiple factors related to the use of your new credit card. Some examples include:
- Approving or denying your application
- Card activation
- Deciding your credit limit amount, the terms, interest rates, fees, and some of the benefits for your account
- The company makes the payments to the merchants for your purchases
- The credit card issuer is in charge of issuing your billing statement
- They collect monthly payments
- They provide customer service and support, such as replacing a stolen credit card
If you have any questions about your account or card, you should know who your credit card issuer is. Your credit card will display a logo for both the issuer and the network. You may also be able to find their contact details on the back of your card.
Co-Branded Partners and Rewards Credit Cards
Many credit cards partner up with co-brands. Co-branded partners may include merchants or retailers, airlines, and hotels. By using co-branded cards, you qualify for certain rewards. Typically, these rewards are points that you earn for every dollar spent. Some credit cards offer higher reward earnings for categories such as travel, dining, gas, and groceries. Look for rewards categories that match where you tend to spend the most. You can then put your reward points towards paying for miles or merchandise. Many cards also offer a cashback option. For any rewards questions or issues, you should contact the co-branded partner directly. You should only consider a rewards credit card if you can keep up with monthly payments.
Some pros of owning a rewards credit card include:
- The card often comes with a sign-up bonus – you earn additional points for spending a certain amount within the first months. In some cases, your sign-up bonus could cancel out other fees.
- You receive cashback and other rewards.
- The card often includes benefits related to the affiliated brand.
Some of the cons are:
- You need a good to excellent credit score to qualify.
- You should expect a higher annual fee and APR.
- Foreign transaction fees may apply.
- You must spend at least $500 to qualify for the sign-up bonus.
- There are possible caps and limitations on earning rewards.
- Minimum redemption amounts may apply.
The Three Types of Rewards Credit Cards
General Rewards Credit Cards
A general rewards card is a good starting point. You can use the points or miles towards a variety of redemption options.
Cash Back Credit Cards
You can receive between 1% to 6% cashback on what you spend on your card. Depending on the card, you may have a flat rewards rate or bonus rewards categories.
Travel Rewards Credit Cards
You can earn points or miles and then redeem them with specific partners, co-branded airlines, or hotels. Some of the benefits of a travel rewards card include free checked bags, priority boarding, late checkout, complimentary internet access, and airport lounge access. Other benefits may include travel insurance and roadside assistance. One such reward card is the Diners Club card.
Most credit cards include fraud protection and free access to your FICO score. With other credit cards, including rewards cards, additional benefits apply. Additional benefits may consist of auto rental insurance, extended return policies, extended warranties, no foreign transaction fees, trip cancellation insurance, and purchase protection.
With more benefits come higher annual fees, a higher APR, or credit score requirements. However, If you are a frequent traveler, a credit card that offers more benefits could add up to a lot of savings.
What Qualifies You for a Credit Card?
When applying for a credit card, the credit card company will mainly pay attention to your credit history. A credit report shows your history of bill payments, outstanding balances, types of loans, and credit applications. The company will also consider the length of your credit history, whether you’ve had any legal issues, filed for bankruptcy, and other financial information. In short, your credit score reflects how much of a financial risk you are.
The credit card issuer uses your credit report to determine your interest rates, the terms of the cardholder agreement, as well as the ultimate decision of whether or not to give you a credit card. A higher credit score will allow you more benefits when applying for a credit card. You must ensure that your credit report is correct. Credit issuers use different credit reporting agencies, and your score may vary depending on the agency’s scoring system. Most credit providers use FICO scores. When you receive your credit report, be sure to inspect it thoroughly. It only takes one billing error to bring your score down, so if you spot a mistake, report it back to the reporting agency.
How Does My Credit Score Affect My Credit Card Options?
Good to Excellent Credit Scores
With a good credit score of 670 or higher, you have more credit card options. You will most likely qualify for credit cards that offer rewards, cardholder benefits, no annual fees, a lower APR, and higher credit limits.
Poor Credit Scores
Credit card companies consider individuals with a FICO score below 580 to be a higher risk. You are less likely to qualify, but there are some options available for consumers with poor credit scores. These credit cards come with less attractive terms that may include:
- An initial deposit
- Lower credit limits
- Higher than average APR
- Additional monthly fees
What are your Options if you Have Poor Credit?
If you use your credit card responsibly, you can rebuild your credit history.
Secured Credit Cards
Secured Credit Cards require a cash deposit upon activation. The deposit amount is typically equivalent to your credit card limit. A deposit ensures easier approval, lowers APRs, and serves as collateral should you fail to pay your balance. A secured credit card is an ideal tool to help you improve your credit history. Once your credit score increases, you may qualify for a better card and more benefits. If you request a product change within the same company, they will not do a hard pull on your credit report. You also keep the same account number, and often the same credit card number. Therefore, your credit history length and score will not be affected.
Unsecured Credit Cards
Unsecured credit cards require no cash deposit. These cards often come with processing fees or higher annual fees. The higher APR is in place to neutralize the risk of losing out on payment of the balance.
What if I Have No Credit History?
With no credit history, it could be difficult getting approval for an unsecured credit card. Some issuers have specially designed credit cards for college students or those without a credit history. If you are looking for your first credit card, you may want to consider a student credit card. Such a card requires that you have an average credit score though you can use a co-signer if you have no credit history. Student credit cards often come with benefits such as cashback, good grades rewards, and credit tracking. You may have to provide proof of income to qualify. Unless you can prove that you (or your co-signer) have sufficient income, a credit cardholder needs to be at least 21 years old.
What Kind of Fees Apply to My New Credit Card?
You wouldn’t think that you can make money by loaning money. However, that’s what credit card issuers do. They make their money by charging fees and interest. As mentioned before, the credit card issuer also charges swipe fees to the merchant.
Some of the fees that may apply to you include:
- Annual fees
- Late payment fees
- Balance transfer fees
- You also pay interest when carrying a balance on your card
Your provider may offer additional products or services at a price. A credit card issuer earns extra revenue by selling add-ons like credit monitoring or credit protection.
Is it Worth Paying an Annual Fee?
Annual fees typically range between $25 and $550, depending on the issuer. In some cases, like with rewards cards, the annual fee is waived for the first year. If the card’s benefits or rewards outweigh the annual fee, it may be worth choosing a card with a high charge. If not, it will be better to get a credit card with lower or no annual fees.
Carrying a Credit Card Balance
To carry a balance means ultimately not paying what you owe to the credit card company. Why would you want to carry a balance? Some of the reasons for carrying a credit card balance may include:
- You are not able to pay in full.
- You want to free up some cash or spread out the payments.
- You believe that carrying a balance has a positive effect on your credit score.
- You want to use your credit limit as an alternative emergency deposit account. It is better to use cash, a prepaid card, or a debit card for everyday purchases. However, if you still make continued use of a credit card to keep your credit score up, do not rely on it for a single big purchase.
Most financial advisors will discourage you from carrying a balance as it could be risky. Although it is generally a bad idea, there could be some benefits.
The Pros of Carrying a Balance
By utilizing around 30% of the available credit, and paying on time, you could build your credit score. It’s all about balance. Using too much or too little of your available credit reflects negatively on your score. When using a credit card with a 0% APR over the first few months, you could earn rewards and still pay 0% interest on any outstanding balance.
What Are the Cons?
Carrying a balance could lead to serious credit card debt and is costly on a high APR card. As well as the interest you pay on your balance, you may have to pay a late fee if you don’t pay the minimum due amount in time. Carrying a balance shows your inability to pay off debt, the less you pay back, the more it will hit your credit score. A poor credit card payment history may result in you not being able to access other forms of financial aid, such as a personal loan.
Credit cards for Balance Transfers
To transfer your balance means to move all your current debt to one credit card provider. Doing so can be a great tactic to reduce interest payments. By transferring your debts to one account, you can make them more manageable. You can use balance transfer payment cards to pay off old debt. Moving your debt from a high-interest card to a 0% interest card makes paying off the balance easier. Balance transfer cards typically come with a service fee and a specified 0% interest period. As long as you pay off the debt before the deal expires, you will pay no interest. An upfront transfer fee of 3% to 5% of the transfer amount typically applies. Before deciding on a card for balance transfers, make sure that the fees don’t add up. Is the 0% interest period long enough for you to consolidate the debt?
Is it Wise to Own More than One Credit Card?
You should only consider multiple credit cards if you can manage your credit responsibly. Owning multiple cards could significantly build your credit history. You could also cash in on more rewards and benefits. If you are considering owning more than one card, ask yourself these questions:
- Are you able to pay off the full balance each month? It could be tricky managing multiple cards. If you aren’t able to manage the payments, annual fees, and your budget, it’s not a good idea.
- How long is your credit card account history? If you’ve had a credit card account for a while, it could reflect well on your credit history. If you find more competitive rewards and benefits elsewhere, you may want to consider a new credit card.
- Do rewards drive you? You gain different rewards from different cards. By combining your credit cards wisely, you can maximize the rewards you earn.
- Are you seeking more benefits? Some credit card benefits make it worthwhile. Can you cash in on travel benefits or extended warranties?
The Top US Credit Cards of 2019
There is an endless amount of credit card options available. When doing your research, you will find that many familiar names come up. By now, you should have a better idea of what you are looking for in a credit card. When choosing a credit card, think about your budget, spending habits, your financial goals, and credit score. Let’s take a look at some of the top cards available from some of the largest credit card issuers on the market.
Best 0% APR Credit Card – Bank of America Travel Rewards Visa
With Bank of America’s Travel Rewards Visa Credit Card, there is no annual fee and 0% APR on any purchases for the first 12 billing cycles. After that, the regular APR ranges between 16.74% to 24.74%. You earn more rewards and benefits if you are already a Bank of America account holder or Preferred Rewards member. The card comes with flexible redemption policies and a high reward rate. You earn 1.5 points for every dollar spent on any purchase. As well as the flat-rates rewards structure, this card has no foreign transaction fees. Points are redeemable at any time of the year with any carrier or hotel chain. You have a 12-month window for using your points. You can earn 25,000 online bonus points for spending a minimum of $1,000 in the first 90 days.
Best Student Credit Card – Discover It Student Cash Back
With Discover It Student Cash Back, you have no annual fee and a 0% APR on purchases for the first six months. After that period, the regular APR is between 14.74% to 23.74%. There is also an introductory bonus for balance transfers at an APR of 10.99% for the first six months coming with the card. No late fees on your first late payment and no APR changes for paying late apply too. Each quarter you can earn 5% cashback on different categories and 1% unlimited cash back on all other purchases. For up to 5 years, Discover will reward good grades (GPA of 3.0 or higher) with a $20 statement credit. Their unique Freeze It option helps prevent new purchases, unauthorized charges, cash advances, and balance transfers.
Best for Fair to Poor credit – Credit One Bank Platinum Visa for Rebuilding Credit
With Credit One Bank Platinum Visa for Rebuilding Credit, you pay between $0 and $99 in annual fees. This card, as the name suggests, is about rebuilding credit. For that reason, there is no intro APR on purchases or balance transfers. Regular APR ranges from 19.99% to 25.99%. A pre-qualification with the card issuer won’t hurt your credit score. They also report to credit bureaus monthly, and you can mark your improvement with their free of charge access tool to your Experian credit score. The credit card company automatically reviews your card use and may consider providing some credit limit increase opportunities. The card comes with an intro bonus and 1% cashback on any eligible purchases. You also receive account alerts that can be customized and receive them by email or text and have free fraud liability cover.
Best for Travel Rewards – Chase Sapphire Preferred Card
The Chase Sapphire Preferred Card comes with a $95 annual fee. Regular APR ranges between 17.74% to 24.74%, and you need good to excellent credit to qualify. You have the flexibility to earn rewards from various providers and brands. You earn 2 points for every dollar spent on dining and travel and 1 point on everything else. When booking your trips through Chase Ultimate Rewards, you have 25% more value on your points. There is also the option to transfer your points to other loyalty programs. A sign-up bonus of 60,000 bonus points applies once you have spent $4,000 in the first three months.
Best for Commuting and Cash Back Options – Blue Cash Preferred Card from American Express
With the Blue Cash Preferred Card from American Express, you will have 0% APR for 12 months on any purchases or balance transfers. After that, an APR between 14.74% and 25.74% applies. The card comes with an annual fee of $95 and a $250 intro bonus when spending more than $1,000 within the first three months. Cashback rewards range between 1% and 6% on purchases, with the higher rates offered when using U.S. gas stations, public transit, supermarkets, and U.S. streaming subscriptions.
Best for Dining Rewards – Capital One Savor Cash Rewards
The Capital One Savor Cash Rewards Credit Card has no annual fee for the first year. After that period, the fee is $95 per year. Regular APR is between 16.24% to 25.24%. Capital One offers a one-time $300 intro bonus after spending $3,000 within the first three months. The card also comes with no foreign transaction fees. There are no rotating categories to plan around, no expiration date on cashback rewards, and no cash-back earning limits. You can earn 4% cashback on dining and entertainment, 2% on grocery store purchases, and 1% on all other purchases.
Now that you have a greater understanding of credit card companies, rewards, and benefits, it is time to start your search. When choosing a credit card, it’s all about the balance and knowing what you can manage. There are credit cards to cater to every kind of consumer. Customer satisfaction is also an essential factor, so be sure to read blogs and reviews before committing to a credit card issuer.
Have you had any bad experiences with credit card providers? What types of rewards and benefits do you value?