Best Credit Cards
There is no one best credit card, but there is one or more that are best for you. Read on to discover all your options, and then pick the best credit card that perfectly suits your lifestyle.
What are the Different Types of Credit Cards?
Each kind of credit card has its own benefit cluster. You should find one or more of these categories a good match to your needs. Generally, the best credit card will charge a low APR, low or no annual fee, and generous rewards/sign-up bonuses.
- Travel: Travel cards form a super-group encompassing the airline, hotel, and car rental industries. Co-branded travel cards offer rewards for a single company (and its affiliates), whereas general travel credit cards allow you to accumulate points or miles applicable to multiple companies that often compete with each other. For example, you might select a general travel card that offers frequent-flyer miles for several domestic and international airlines. The best credit cards for travel offer the same rewards as the co-branded ones. Travel cards frequently offer more points/miles when you use them for partner services, such as air flights, car rentals, or hotel bookings. The best of these also award points for unrelated purchases. Outstanding cards offer many travel-related benefits (such as free baggage insurance), have points that never expire, do not charge redemption points, and waive foreign transaction fees. Some travel cards give you the option of receiving cash back, but often at a fraction of the value you’d receive in free or discounted travel.
- Cash back: A cash back credit card refunds you a percentage of the amount you charge on your card. You can use the cash back for any purpose. This is a good choice for those who want the most freedom choosing how to benefit from their credit card usage. Most cards credit you for the payments you make to the card, while some split the credit between the charged and payment amounts. Some cards are exclusively cash back, while others offer your choice of cash, points/miles, and/or merchandise. The cards that offer the most cash back require a high credit score and are more likely to offer unlimited cash back capability. Folks with poor scores will have trouble qualifying for a cash back card. The best credit cards combine the highest percentage cash back, the largest sign-up bonus, and the lowest annual fee. You’ll also have to choose between cards that offer cash back on all purchases versus ones that have quarterly spending categories that earn higher rebates.
- Balance Transfer: The allure of a balance transfer credit card is the ability to move/consolidate the balances of one or more other credit cards and pay no interest on the transferred amount for a set promotional period. The zero-percent period varies by card, but the best credit cards might offer 12, 15, or even more interest-free months. Some cards add in a zero-percent period on new purchases for a shorter period, often six months. The other factor to consider is how much the card charges for the transfer transaction. It’s rare to find a card that doesn’t charge a fee of a few percentage points (usually 3 to 5 percent) on the amount transferred, but some no-fee cards do exist. The card may charge the fee up-front, but most simply add the fee to your balance. Of course, you’ll want to compare the APRs you’re currently paying with the APR the balance transfer card will charge once the promotional period expires.
- Secured: Secured cards are aimed at consumers with poor credit who can’t qualify for an unsecured card. It’s easier to get a secured card because they are collateralized – requiring you to put up collateral (cash) to cover any missed payments. The collateral is usually kept in an account at the issuing bank. The account earns token or no interest, and the collateral amount cannot be withdrawn unless the card account is closed. These cards usually have modest credit lines – often $500 – and the amount of required collateral may be different from the credit limit. You use a secured card just like an unsecured one, meaning you pay interest on carried balances and you must make at least the minimum payment each month. If you miss a payment, the bank will withdraw the amount from your card and reduce your limit until the money is restored. Missing two or more payments will likely cause the bank to close the card.
- Rewards: All but the most basic credit cards offer some type of rewards, whether it’s cash back, miles/points, merchandise, or some other goodies. If you have poor credit, you might be able to qualify for a no-frills credit card, but everyone else will have access to a rewards card. The best credit cards for rewards, reserved for consumers with excellent credit, offer generous benefits, such as multiple points per dollar spent, large sign-up bonuses, free insurance for baggage, flights, rental cars, extended warranties, and many more. The best rewards credit cards might come with hefty annual fees (often waived for the first year), but some are no-fee. They usually feature high credit limits. Consumers should research these cards carefully, because some offer complicated reward schemes, such as rotating quarterly cash back categories or different mileage rewards for different types of purchases. Finally, some charge cards specialize in providing generous rewards, but require you to pay the balance in full each month.
- Hotel: Hotel rooms have become increasingly expensive, but owning a hotel credit card lets you enjoy better deals in return for your loyalty. These cards are co-branded with major hotel chains such as Marriot, Starwood, Hilton, etc. They reward you points for hotel stays that can be redeemed for free nights, reduced rates, priority check-in, complementary meals and upgraded rooms. The best credit cards offer more generous rewards, and often work with airlines to allow points to be used for travel. Many hotel cards offer some rewards for general spending, but usually reserve the best rewards for stays. It makes sense to choose the card offered by your favorite chain so you can concentrate your point accumulation. If you seldom stay in hotels, this kind of card might be of little use, but folks who have heavy travel schedules will benefit from their loyalty to their favorite hotel chain.
- Airline: Airline credit cards offer frequent-flyer miles that can be used for free flights, reduced fares, and class upgrades. Many are specific to a particular airline and its partners, but some offer miles that can be used at any airline. These credit cards may offer many travel-related benefits, including waived baggage fees, priority seating, lost baggage insurance, delayed flight insurance, no foreign transaction fees, and access to airport lounges. Many allow you to use miles for hotel stays and rental car fees. These cards might reward you only for travel on the co-branded airline but not for unrelated spending. As always, consumers need to research the details to see which cards offer the most generous mileage rewards, what the miles are worth, whether miles expire, and how much the card costs. You always have to ask yourself where you want to travel, whether the card-issuing airline travels to these places, and whether you have a favorite airline.
How to Choose the Best Credit Card for You
With so many cards to choose from, how do you pick the best credit card for you? To help you decide, consider what type of rewards you want, your credit history, and the interest you pay.
Types of Rewards
Unless you have a poor credit score, you should be able to qualify for a credit card that provides one or more types of rewards. It’s up to you to select the most useful type of reward. Here are the types to consider:
- Cash back: A cash back card can make sense if you live on a tight budget and do little traveling. Cash back can add some extra money to a cash-strapped household. Cash is so versatile – you can use it for all debts, public and private. By choosing cash back, you avoid making a commitment to an airline carrier or hotel chain. If you are stretching your budget to put food on the table, frequent flyer miles might seem frivolous. Some cash back cards use quarterly rotating categories, such as groceries, gas stations, restaurants, etc., and are usually capped for the quarter. If you don’t think you’ll hit the cap amount in each of the year’s four quarters, you’ll be better off with a general cash back card that doesn’t use categories.
- Miles/points: Credit cards that reward you with frequent-flyer miles or hotel points make sense if you like or need to travel. Often, reward miles are more valuable than cash back. It’s easier to select the best credit card if you have a favorite airline or hotel. Many cards offer both cash back and miles/points, letting you decide which type of reward you want without locking yourself in. Often, airline cards give you extra points when you purchase tickets from their airline. Beware of reward programs with expiring miles or points. If you don’t take advantage of your cache in time, it will simply disappear. The other risk of holding points is that they may be devalued at any time. For example, if the airline rejiggers its program, a seat upgrade that costs 50,000 miles might suddenly require 75,000.
If you’d like to get your first credit card but have no credit history, you might want to try one of these strategies:
- Secured credit card: As we explained earlier, a secured credit card is collateralized by a cash deposit in an account at the issuing bank or credit union. This is a good way to start, because the cash deposit reduces the risk undertaken by the card issuer, making it easier to qualify for the card. Some issuers offer to replace a secured card with an unsecured one if you manage your card responsibly for a set number of months. That means paying your bills on time and paying more than the minimum amounts.
- Authorized user: A friend or family member can make you an authorized card user. This means you get to use that credit card as if it were your own, even though only the card owner is responsible for payment. By becoming an authorized user, you will receive recognition on your credit report for responsible use of the credit card. Eventually, you should be able to get your own credit card that best fits your needs.
If you already have a credit history but a low credit score that prevents you from qualifying for one of the best credit cards, you can take steps to raise your credit score, including:
- Reduce debt: Credit bureaus evaluate your credit utilization ratio (credit used/credit available) when calculating your credit score. You can improve your score if you reduce your ratio below 20 percent.
- Pay more than minimum amounts: As you reduce your debt, you should be able to pay more than the minimum monthly amounts. Consistently paying the minimum makes credit bureaus nervous, since it might indicate you’ll have problems handling an unanticipated expense.
- Don’t close accounts: Even if they are no longer used, keep old accounts open, as they extend your credit history, and closing them will not raise your score.
Reducing Your Interest Rate
The reward for improving your credit score is gaining access to better credit cards, and eventually, some of the best credit cards in the industry. This means obtaining cards that charge less interest, charge lower fees, set higher limits, and provide better rewards. For many, the most important factor is reducing the money spent on interest each month. Even if you can’t quickly reduce your outstanding balance, you might be able to save on interest by arranging a zero-interest balance transfer. In this procedure, you move outstanding balances from one or more credit cards to another card offering the zero-interest deal. You will not have to pay interest on the transferred amount for a number of months set by the issuer. Some cards offer 15 or more months of zero-interest on transfers, and some also offer zero-interest on new purchases for a defined period. Unfortunately, transfers are usually not free – you are charged with a service fee in the 3 to 5 percent range. This must either be paid up front or is added to your balance. If you can find a zero-balance transfer promotion that waives part or all of the fee, jump all over it. If you use your credit cards heavily, it might make sense to replace a no-fee, high interest card with a lower-interest card that charges an annual fee. You’ll have to compare the amount you’ll save versus the fee to see whether it pays to make the switch. Another tactic is to trade in high-interest credit cards that offer rewards for lower-interest cards that skip the rewards. This is a good idea if saving on interest is your primary concern.
Why You Shouldn't be Worried About Having Multiple Credit Cards
If you own multiple credit cards, you are in good company. Experian reports that, in 2016, the average consumer had 2.35 bank-issued credit cards. The average balance per card owner is more than $5,500, representing a credit utilization ratio of 30 percent. A little more than 38 percent of American households carry some amount of credit card debt. An important point that some consumers overlook when considering multiple credit cards is that your credit score hinges on your credit utilization ratio, not the number of cards. For example, it’s better for your score if you have five cards and a utilization ratio of 20 percent, than it is to own just one card and a ratio of 40 percent.
Several benefits can accrue from owning multiple credit cards:
- Diversified rewards: You live a complex life, so why settle for simply one type of reward? Owning multiple cards with different reward profiles gives you the opportunity to juggle any card usage to your best advantage. For example, you might have a few cards that have quarterly revolving reward categories. If you are interested in a particular category, such as grocery store purchases, you might be able to stretch your grocery rewards over the entire year by using different cards at different times. You can simultaneously hold an airline rewards card to purchase flight tickets.
- Backup cards: Even if you use mostly one card, it’s smart to have at least one other credit card in case your main one is lost, stolen, declined, or otherwise compromised. It usually takes a few days to replace a lost card, so having a backup card fills the time gap. This is especially important if you lose your card just before you plan to travel. Speaking of travel, if you are vacationing abroad, you might have a backup card that waives foreign transaction fees.
- Vulnerability to fraud: You can imagine that the more you use a card, the more exposed you are to fraud or identity theft. If you use just one card it is more exposed to hacking. You can spread the risk by using multiple cards.
- More credit: You might run into inconvenient credit limits if you use only one card, even if you have good credit. Owning multiple cards can boost your overall credit availability, which increases your spending flexibility. The extra available credit also reduces your utilization ratio, which is good for your credit score.
- Better to keep: You might decide to change your primary credit card, but that doesn’t mean you should close the account. That’s because your credit score is influenced by the age of your accounts – the longer your credit history, the better for you. FICO states that closing older accounts will not improve your credit score, and if it shortens you credit history, could actually hurt it.
- Card acceptance: Not all merchants around the world take all credit cards. If your principal card is not a major brand, you might need a backup card from one of the big issuers to handle situations in which your favorite card isn’t accepted.
- Authorized user: You might want to make a family member or friend an authorized user of your credit card, but then limit the amount of credit available on that card. This protects you from an authorized user who abuses the privilege by overspending. It’s much safer to utilize a credit card with a low spending limit when you authorize additional users, and save the high-limit cards exclusively for your own use.
What Are the Most Common Benefits Offered by Credit Card Companies?
The best credit cards provide many benefits in addition to rewards. Here are the most common:
- Zero liability for fraud: The Fair Credit Billing Act protects you from credit card loss and fraudulent charges. Should fraud occur for which you are not responsible, your exposure to loss is limited to $50. If your credit card number, but not your card, is stolen, you have no liability for unauthorized use. Many credit cards now come with zero liability for fraud, which can save you up to $50 should your card be stolen or otherwise used without your authorization. While $50 is not a lot of money, imagine your exposure if your wallet full of credit cards is stolen! If that happens, you’ll be very glad that all your cards come with zero liability. This is an important protection, and credit card issuers who offer it usually advertise it. If you don’t see any mention of this benefit in the fine print that accompanies a credit card application, it might not be the best option for you.
- Free credit scores with your statement: No one likes unpleasant surprises, and a sudden drop in your credit score is certainly unwelcome. Unanticipated drops might occur if your personal information is hacked and used for fraudulent spending. It might also occur if bad information works its ways into your credit report. Free credit score monitoring is therefore a good way to watch out for sudden shifts in your score. Some of the best credit cards offer free credit score monitoring with each monthly statement. The score usually comes from one of the three big credit bureaus: Experian, Equifax, or TransUnion. It’s important to read the disclosure statement about this benefit to ensure you are getting a score from a major bureau and that it is a FICO or VantageScore, the two most popular scoring systems. A credit score from an obscure credit bureau using a no-name scoring system is worse than useless, it can be misleading.
- Rental car and travel insurance coverage: This benefit can be a big money saver. Rental car collision damage insurance can easily cost $15 a day. That’s $75 on a five-day rental, a cost that your credit card might pick up if it offers this benefit and you charge the rental to the card. You definitely want to have the collision damage waiver, because even minor fender-benders can cost hundreds of dollars to fix. Beware that this insurance doesn’t cover liability and injuries. Baggage delay is another expensive hassle you’d like to avoid, or at least be insured against. Many of the best credit cards will reimburse you up to a set amount if your bags are lost or delayed for a specified period after you arrive at your destination. You can use the money to buy emergency clothes, grooming items, or whatever else you need. Another important benefit is trip delay reimbursement, which pays you a set daily amount if your travel arrangements are interrupted by the carrier. The reimbursement will help you pay for meals or a stay in a hotel until your transportation becomes available again. Some cards provide free travel accident insurance, which is like a mini life insurance policy for the duration of your trip. Trip cancellation insurance reimburses your ticket costs if an emergency or illness prevents you from traveling.
- No foreign transaction fees: If you’re traveling out of the country, you will want to have a credit card that waives the foreign transaction fees, which normally add 3 percent to the cost of international purchases. If you like to buy souvenirs when you travel abroad, this can be a real money saver. This benefit is also useful if you make a purchase from a foreign merchant, even if it doesn’t involve any travel. Don’t confuse this benefit with dynamic currency conversion (DCC) fees. You incur this fee if you make a foreign purchase and want to pay in dollars rather than the local currency. Unless you ask the merchant to waive DCC, you’ll pay the conversion rate charged by the DCC service provider. That’s a bad deal, because DCC service providers usually inflict unfavorable rates to cover their costs of conversion. It’s cheaper to decline DCC and let your credit card issuer do the currency conversion.
- Extended warranties: Nothing stings like having an item malfunction a day after its warranty expires. If you bought the item with your credit card, you might be in luck – many of the best credit cards include free extended warranties that add up to a year of extra protection on items purchased with the card. That’s a good deal and its free. Filing a claim usually involves calling the card issuer within a set period after the problem occurs and submitting a claim form, credit card receipt, purchase receipt, manufacturer’s warranty/service contract and an itemized repair estimate. Beware of certain limitations:
- The amount covered for repairs or replacements is probably limited.
- The warranty usually doesn’t cover damage from power surges, normal wear and tear, product recalls, and losses from mold or natural disasters.
- Certain products might be excluded, such as motorized vehicles, antiques, living things, software, consumables, floor models, used/refurbished items, storage media, permanently installed fixtures, and real estate.
- Roadside assistance: If you’ve ever been stranded on the side of the road, you’ll appreciate the roadside assistance benefit offered by some credit cards. This isn’t a free service – you pay for the assistance on a per-use basis, which can save you money compared to an annual flat fee membership in an organization like AAA. The benefit’s value depends on how often you use it. If your car is in good condition and seldom has problems, the flat fee for a single episode might be less than the annual flat fee from AAA. However, if you own an old jalopy, it’s probably cheaper to join an organization and pay the annual flat fee. The benefit usually covers several services such as fixing a flat tire, providing gasoline for an empty tank, jumpstarting the vehicle, or towing it to a repair center. The card specifies a toll-free number you can call to get service, and you’ll pay a flat fee per use. Some issuers state the fee upfront, others don’t.
- Multiple credit cards for authorized users: Earlier, we discussed how becoming an authorized user on another person’s credit card can help someone with poor or no credit build good credit. However, from the card owner’s viewpoint, adding authorized users is a risky undertaking, because you – not the user – are ultimately responsible for paying the credit card balance. The more authorized users you add, the more you risk having at least one of them turn out to be a deadbeat, refusing to pay for card usage. You can limit the risk by using a credit card that issues separate cards, with separate account numbers, for each authorized user. This way, you can have the issuer set a low credit limit on the separate cards. You then also have the ability to close an authorized user’s account without affecting your account or the accounts of other authorized users. It might seem like a minor convenience, but if you should ever need it, you’ll find it very worthwhile.
- Replacement cards if you lose it: Virtually all credit card issuers will replace lost cards for free, but some cards offer more convenient procedures. Normally, the new card will have a new account number, with all the usage and payment history carrying forward. Nevertheless, getting a new account number is a hassle because you have to update all the online sites where the card is registered. You’ll also have to update any automatic payments set up on the card. Some issuers offer to replace the card without changing the account number if you assure them that the card was misplaced somewhere in your home. That’s convenient. Another benefit offered by some issuers is to use expedited shipping to get your new card to your mailbox faster.