How do I Choose a Credit Card that Fits my Lifestyle?

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Q: I’m looking to open a new credit card, and I’m confused by the options. How can I find a credit card that best fits my lifestyle?

A: There are many types of credit cards. The one that’s best for you depends on your life circumstances as well as your financial habits and goals. Let’s take a quick look at five kinds of credit cards so you can better choose the one that best fits your lifestyle.

1. Low-interest cards

Low-interest, 0% APR (annual percentage rate), or balance-transfer cards, all offer very little or no interest charges for an introductory period. This period can last as long as 18 months, or even longer. After that, the card’s ongoing APR will kick in on the remaining balance and any ensuing charges.

Pros:

Pay off debt quicker with the no-/low-interest period
Consolidate debts into one monthly payment
Qualify even with a low credit score

Cons:

Ongoing APR can be higher than average
Transferring debt to a new card can trigger overspending with the newly available credit
There’s no external motivation to pay off debt that’s been transferred to a low-interest card, as credit cards have no end dates, unlike loans.

Great choice for: consumers looking for a way to consolidate their debt, pay it off quicker and lower their overall interest.

Not recommended for: consumers who are likely to spend more when having high available credit and who are unlikely to pay off their debt before the introductory period ends.

2. Secured credit cards

These credit cards are starter cards requiring the cardholder to make a deposit before they open the line of credit. The card issuer will hold this deposit for a fixed amount of time as collateral in case there’s a missed payment. At the end of this time, which generally runs from eight to 12 months, the card issuer will return the deposit if there is no outstanding balance on the card. The consumer can then close the account and open an unsecured credit card.

Pros:

No credit history required
Impossible to max out and land the consumer in deep debt
Great way to build credit for the young and/or unbanked

Cons:

Requires collateral for the full credit limit
Minimal credit limit
Steep interest rates
Annual and other fees are common
May not report to all three credit bureaus

Great choice for: consumers looking to build their credit history from scratch or repair past credit troubles.

Not recommended for: consumers looking for a long-term card with a generous credit limit and favorable terms.

3. Low-balance cards

Another starter card, these are intended for new credit card owners who may not have a robust credit history, or none at all. Cardholders will need to prove they pay their bills on time and lead a financially responsible life. The starting credit line will be modest, but using some of the funds and paying the bills on time can be an excellent way to boost a low score.

Pros:

Does not require a strong credit history; may not require one at all
Gateway to “real cards”

Cons:

Low starting balance
High interest rates

Great choice for: beginner credit card holders with slim credit histories or none at all.

Not recommended for: consumers with high debt who are looking for more credit from a card with easy eligibility requirements.

4. Rewards cards

These credit cards offer the cardholder some kind of reward, such as gas points, cash back or travel points, for every dollar spent. Some cards only reward specific purchases, and most will have limits on the amount of reward points that can be issued per billing cycle. Rewards cards often come with other fringe benefits, such as auto insurance on car rentals, discounted hotel stays and more.

Pros:

Rewards can be significant
Generous credit limits

Cons:

Generally require a strong credit history and high credit score
Can have complicated rules about rewards, including spending caps, rotating bonus rewards and loyalty tiers
Tend to have high annual fee
Interest rates can be high

Great choice for: consumers with high credit scores who spend a lot of money on their credit cards each month and are able to pay the balance in full.

Not recommended for: cardholders who will find the rewards system too complicated and own an expensive card without reaping any benefits.

5. Retail cards

Retail cards, or store cards, can fall into two categories:

Closed loop–can only be used by the associated retailer, like the Target RedCard™.
Open loop–sponsored by a retailer and backed by a major credit card network. Can be used anywhere.

These credit cards tend to offer lots of kickback in the form of ongoing discounts, cash back and special promotions.

Pros:

Many cards offer a sign-up bonus
Ongoing discounts

Cons:

Can have smaller credit limits
May have steep interest rates
Often require high credit scores

Great choice for: Loyal customers of a specific brand who have excellent credit scores.

Not recommended for: the budget-averse shopper, as these cards can become another way to rack up lots of debt.

There are so many choices when it comes to credit cards! Use this guide to help you make the choice that best fits your lifestyle. If you're looking for a locally managed card with Rewards, Card Controls, and Mobile Pay functionality, look no further than the DVFCU Visa!