You can't watch half an hour on TV without seeing a credit card commercial. Credit card companies are always pushing the latest card gimmick whether it be a new rewards system, low interest, special perks, or an elite status. We as consumers are bombarded by this advertising and it seems to be working. The average American has 3.5 credit cards in their wallet.
Credit cards aren't necessarily a bad thing. When used responsibly, their perks can be nice. You can get everything from free travel to cash back to exclusive access to events. Most cards are catered to a specific audience. If you only care about a low interest rate, then a cash back card isn't going to do much for you. Likewise, a zero-balance transfer card probably isn't going to help you get tickets to sold out events.
The key to really benefiting from a credit card is to choose one that fits your lifestyle. You need one that rewards the kind of purchases that you usually make and offers perks that you're actually interested in. With so many cards on the market, how do you know which card to choose?
Cash Back Cards
Who doesn't love free money? That's exactly what a cash back card gives you. You can get as much as 5% of your spending back when you pick the right card.
Cash back cards can be separated into two categories. One type of card will give you a flat rate on all purchases. These rates are typically much lower, 1% or 2%, but give you cash back on every purchase. If your spending is sporadic and you can't classify the majority of it into one category, these general cash back cards are perfect for you.
The other type of card gives high bonuses for certain types of spending. For example, some cards offer 5% back on gas and ground transportation. Some offer 3% back on online purchases. There are cards that target practically every category. If you notice that a lot of your spending is in one category, you'll do better with this type of card.
It also doesn't hurt to have more than one cash back card. You can always use a certain card for gas and another card for online shopping.
Balance Transfer Cards
If you're looking to consolidate your other credit cards, you want a card specifically targeted towards balance transfers. These cards make it easy to transfer balances from other cards. They typically have extremely low introductory rates and the rates remain relatively low after the promotional period. This helps you pay down your debt faster. 0% interest for 12 months or more will save you hundreds or thousands of dollars. It's also much more convenient to only have to pay one credit card bill.
You shouldn't use most balance transfer cards for everyday spending. Their perks are centered around balance transfers. You typically won't get cash back or rewards for every day purchases. Look for a different type of card for your everyday spending.
Rewards cards are perfect for those who love to shop and travel. A reward card will have partnerships with airlines and popular retailers that allow you to use your points to purchase tickets, gift cards and various items at a discount.
Many rewards cards offer bonuses or other incentives on certain kinds of spending. Look for a card that rewards the type of purchases that you make the most. Some cards offer bonuses as high as 3x the regular rate on specific types of spending. If you travel a lot, there are cards that help you accumulate airline miles quickly. If you shop online, there are cards that give bonuses for purchases at major online retailers. The bottom line is, do your homework to find a card that fits your lifestyle.
What To Do If You Aren't Approved
Some of these cards have strict requirements. The more elite cards require high credit scores and have minimum spending levels. If you've had some credit issues in the past, that doesn't completely lock you out of the best cards. You just have some work ahead of you to improve your credit score.
Your credit score is a function of your spending history and your current access to credit. The easiest way to boost your score is to use credit cards responsibly. Don't max out the card and do make your payments on time. Keep this up over the next several months and your credit score will rise.
It is also possible to erase some of the negative marks from your past. The laws regarding consumer credit reporting are very strict. Many creditors get lazy and cut corners. When they don't follow the rules, a credit repair agency can get the negative payment experiences removed. Do your homework before hiring a credit repair agency. If the company doesn't have any reviews or is reviewed poorly, steer clear! In the case of any credit repair company, check the Better Business Bureau and consumer review sites like Yelp.
The best course of action will depend on your specific situation. If you've dealt with shady creditors in the past, check out a credit repair agency. On the other hand, if you only have a few minor issues in your past, focus on future spending. Any combination of these two options will increase your credit score. Keep at it for a period of time and you should be able to qualify for any of the cards above.