On the hunt for a new credit card? With so many on the market, how do you choose? Learn about the best credit cards and how to choose the right one for your financial goals.
What Are Credit Cards?
A credit card is a payment card that allows the cardholder to borrow money from a bank or credit union to pay for goods and services. Credit cards are typically made of plastic and have a magnetic stripe or chip that stores the cardholder’s account information. When a cardholder uses a credit card to make a purchase, the card issuer pays the merchant directly and the cardholder is billed for the purchase later. Credit cards can be used to make purchases online, in stores, and over the phone.
There are many different types of credit cards available, each with its own unique features and benefits. Some of the most common types of credit cards include:
- Rewards cards: These cards offer rewards such as cash back, points, or miles for every dollar spent.
- Balance transfer cards: These cards allow cardholders to transfer debt from other credit cards with high interest rates to a card with a lower interest rate.
- Student cards: These cards are designed for students with limited credit history.
- Secured cards: These cards require a security deposit, which is typically equal to the credit limit.1
Learn About Credit Cards
Credit cards can be a convenient and flexible way to pay for goods and services. However, it is important to use credit cards responsibly. If a cardholder does not pay their credit card bill in full each month, they will be charged interest on the unpaid balance. Interest rates on credit cards can be high, so it is important to make sure that a cardholder can afford to pay off their balance each month before using a credit card.
Credit cards can also help cardholders to build their credit history. A good credit history can make it easier to get approved for loans and other types of credit in the future. However, a poor credit history can make it difficult to get approved for credit and can lead to higher interest rates.
Choosing the Right Credit Card
There are many factors to consider when choosing a credit card.2 Some of the most important factors include:
- Interest rate: The interest rate is the amount of money that a cardholder will be charged if they do not pay their credit card bill in full each month.
- Annual fee: Some credit cards charge an annual fee, which is a flat fee that is charged each year regardless of how much the card is used.
- Rewards: Some credit cards offer rewards such as cash back, points, or miles for every dollar spent.
- Credit limit: The credit limit is the maximum amount of money that a cardholder can borrow on their credit card.
It is important to compare different credit cards before choosing one to make sure that a cardholder is getting the best possible deal.
Learn More About Credit Cards
There are many resources available to help consumers learn more about credit cards. Some of the best resources include:
- The Consumer Financial Protection Bureau (CFPB): The CFPB is a government agency that provides information and resources on credit cards and other financial products.
- Credit card issuers: Credit card issuers can provide information about their specific credit cards, including interest rates, fees, and rewards.
- Credit counseling agencies: Credit counseling agencies can provide help and advice to consumers who are struggling with credit card debt.