Stores have been allowing customers to charge purchases ever since–well, probably since the first stores opened their doors. Yet it wasn’t until 1950 that Diners Club became the first credit card to be accepted at multiple merchants, in this case, restaurants.
Fast forward to 2018, when choosing a credit card can be an incredibly difficult decision.
What’s the best kind? What kind of rewards can you earn? What’s a good interest rate? Do you even really need one?
Don’t worry–we have all the answers to those questions and more!
Why a Credit Card Is a Sound Financial Decision
Many people think that the way to avoid tanking their credit score is to cut up credit cards and operate on a cash-only basis. In fact, the exact opposite is true. Demonstrating fiscal responsibility through credit card ownership is a necessity if you want to attain and maintain a good credit score.
Not only that but keeping a credit card is a smart way to protect yourself in the event of an emergency. Unexpected expenses do occur, but a credit card helps buffer the blow.
The Three Types of Credit Cards
Not all cards are created equally. There are essentially three different types:
- Cards that help you establish credit
- Cards that give cash back or other rewards
- Cards with low-interest rates
Understanding which type, you need–and it might be more than one type–is essential to choosing a credit card wisely. Your first step is to check your credit score if you don’t already know it. There are several ways to do this, but the federally authorized Annual Credit Report is free and won’t penalize you.
If Your Credit Is Poor
Fair warning: if your credit score is very bad, you have to be very careful which cards you get. Some predatory cards can actually keep you mired in debt because they have hidden fees and restrictions.
Next, you’ll have to choose between a secured credit card, which functions more like a debit card in that you must have the money available to use it, or an unsecured one.
Want Low-Interest Rates?
If you think you’ll carry a balance month over month, rather than paying off your credit card as payments are due, a low-interest rate card is a good choice. Otherwise, you may never be able to pay your full debt, because the interest will take such a huge chunk of each payment.
Treat Yourself by Choosing a Credit Card with Rewards
Anyone who uses their credit card frequently should consider one that gives back, like a Citibank credit card. You can earn airline miles or free hotel stays. This can be quite profitable for a frequent traveler.
Another popular option is a cashback credit card. As the name implies, it gives a percentage of your total spent back to you at regular intervals.
Which type of rewards to pick is a personal decision, so go into it with a clear head. Don’t get lured into a bad credit card choice by flashy promotions or perks that you don’t really need.
Making a poor decision when choosing a credit card can affect your financial health for years to come. Take it slow, do your research, and ask for help when you need it.
What type of credit cards do you have? How did you make the choice? We’d love to hear your thoughts, so let us know in the comments!