Click below to listen to our Consumerpedia podcast episode on how to choose a credit card.

Banks, credit unions, airlines, hotels, and retailers inundate us with credit card offers. Consumers with good credit histories have hundreds of choices.

Before applying for any credit card, consider how you manage your money, how you use credit, and why you’re considering applying for a new card. Is it to get better spending rewards? To better manage monthly cashflow? To buy something you can’t really afford?

“Credit cards are the best financial tool around if they’re used properly. If they’re not used properly, they’re the worst financial tool around,” said Bill Hardekopf, CEO of BillSaver.com. “Using them properly means paying them off in full and on time every month. If you are not going to do that, then don’t apply for a credit card.”

So, start by asking yourself the most important questions: Does using a credit card encourage you to overspend and create debt? Also, what do I want this card for, and how will I use it?

For those who always pay off their credit card balances each month, rewards credit cards usually represent the best deals by providing rebates or other rewards. There are several factors to consider when selecting a rewards credit card, which I’ll get to in a bit.

If you need to make a large purchase and know you can’t pay the balance in full (again, this is not the best way to use a credit card), you should focus on applying for options that offer low interest rates and don’t charge annual fees.

Start by Checking Your Credit Scores

Before comparing offers, check your credit scores. This will help you narrow down your options. For example, most rewards cards are available only to those with good to excellent credit scores.

Many banks now provide free credit score checks as a perk for their account holders. You can also get free scores at websites such as NerdWallet, WalletHub, and FreeCreditScore.com (from Experian). Expect these and other sites to share your personal information with other marketers, and DO NOT pay for any fee-based credit- or identity-theft monitoring services. Click here for advice on how to monitor your credit and protect yourself from identity and cyber theft.

If your credit scores are lower than you thought, work on improving them before you apply for a card. For most people, the quickest way to boost their credit scores is to pay all bills on time (or early) and pay down debt.

Some credit card issuers now offer a prequalification process that shows you the odds of qualifying for their cards without them doing a “hard” credit check, which is otherwise required to apply for a card. A hard inquiry may lower your credit scores by a few points, but only temporarily; the prequalification screening process uses a “soft” credit check, which does not affect your scores.

How to Compare Offers

Focus on interest rates and fees, including annual fees, late payment fees, and, if you travel internationally, foreign transaction fees.

Because credit card interest rates are at historically high levels, carrying a balance has become even more costly. Here are the latest numbers for the U.S.:

• As of August 2023, the average credit card interest rate was 21.19 percent APR, according to the Federal Reserve.
• Almost half of all cardholders (47 percent) carry a balance from month to month and pay interest on that debt, according to Bankrate.com.
• The average credit card balance is $5,947, according to TransUnion.

Credit card APRs range between less than 15 to more than 30 percent, which means that some consumers carrying credit card debt pay interest-charge penalties that are twice as high as those with high-interest-rate cards.

If you frequently travel outside the U.S., look for a card that doesn’t charge foreign transaction fees. Otherwise, you’ll pay a one-to-three percent fee for each charge you make that uses foreign currency.

Try to avoid paying an annual fee. But if a card offers premium benefits that you will regularly use, such as frequent flyer miles, free checked luggage, or free hotel nights, it may be worth paying an annual fee (see below).

Rewards Cards

Many consumers like getting rewarded with points, miles, or cash rebates when they use credit cards. There are three main types of programs:

• Cards affiliated with airlines or hotel chains
• Cards that offer points that can be redeemed to pay for any type of travel, for products and services with affiliated companies, or donate to charities
• Cards that offer cash rebates

Don’t consider getting a rewards card unless you pay off your credit card bill in full each and every month.

“Your rewards are only going to be worth it if you can pay in full. That’s just the nature of high credit card rates,” said Ted Rossman, senior industry analyst at Bankrate.com. “Even carrying a balance for a couple of months probably outweighs any rewards you would earn.”

If you opt for a rewards card, find one that fits your lifestyle. If you don’t travel much, don’t bother with cards that earn frequent flier miles or hotel points.

Most rewards cards have annual fees, but you can find some good cash-back cards without them.

Rossman believes cash-back rewards cards are best for most people, because “it’s very simple, straightforward, and universal… A no annual fee, two-percent-cash-back card is actually surprisingly hard to beat for most people,” Rossman said on Checkbook’s Consumerpedia podcast.

The key to picking the right rewards card is to calculate the value of the reward per dollar spent multiplied by your typical spending during the year, weighed against any annual fee. For example, if you charge $10,000 per year, it makes no sense to pay a $150 annual fee for a credit card that provides what amounts to a one percent rebate; you’d pay a $150 fee and collect only a $100 reward.

But calculating the value of rewards with some cards is challenging. Some cards offer higher reward amounts for things like restaurant and gas purchases, and some tier their awards so that customers whose spending exceeds a certain amount receive higher rebate percentages.

For cards affiliated with airlines, which usually offer one frequent flyer mile for every dollar spent, it can be very hard to determine the cash value of the miles. Too many factors are at play. If you redeem for a short, cheap route, the value of each mile can be less than a penny; if you redeem for a first-class ticket or upgrade on an international flight and don’t have to give up too many miles, the value can be five cents per mile.

Frequent-flyer-mile values further shrink if you have to pay booking fees for “free” tickets, or if a competing airline offers the same itinerary for a low fare compared to the pile of miles you must surrender for it. But keeping these factors in mind, a reasonable rule of thumb is to assume each mile is worth about a one-to-two-percent rebate.

Complicating this math are bonuses cards offer new applicants—you’ll have to decide if an offer of, say, 40,000 bonus points is worth the annual fee, or creates a better deal for you than, say, getting a competing card that provides a straight two percent cash rebate.

Remember also that rewards cards encourage spending, especially when it feels like you’re getting paid to shop. Don’t let a quest for points or miles skew your decisions away from the cheapest options when buying airline tickets or booking hotel rooms.

Balance Transfer Cards

Credit cards that offer a promotional zero percent interest rate on balance transfers can help you save money—and get your head above water sooner. By transferring a balance from another card, you stop paying interest on that debt for up to 21 months (depending on the offer). To qualify, you’ll generally need at least a good FICO credit score (670 or higher).

“If you are able to pay off your debt in full before that promotion ends, you can save a substantial amount of money on those interest payments,” said Sarah Rathner, credit cards expert at NerdWallet. “The caveat is that once the promotion is over, and you still have remaining credit card debt, you’re going to begin owing interest on that once again.”

To calculate how much you’ll need to pay each month, divide the amount you owe by the number of months of zero interest you’ll get with the new card.

Keep in mind that with most cards there’s a three to five percent fee to transfer your balance, but Rossman believes the interest savings are worth the fee. If you transfer a balance of $6,000, the transfer fee will cost you about $180 to $300.

“Considering that [making] minimum payments would keep you in debt for more than 17 years and cost you about $9,000 in interest, I really like the balance transfer approach, provided that you can make real progress during the term,” Rossman said. “But don’t just kick the can down the road.”

Note: If you’re in serious financial trouble, consult a nonprofit credit counselor who can help create a budget and get you on the right track. You can find nonprofit credit counselors in your area on the National Foundation for Credit Counseling website. In most cases, the initial consultation is free.

Retail Credit Cards

Whether you shop online or in store, expect to be asked to apply for the retailer’s credit card at checkout. The selling hook usually involves offering you a sizable discount on the purchase you’re about to make if your application is accepted.

Retail cards can be a good fit for loyal customers because you’ll get a big rebate when buying at that store—up to five percent—along with ongoing perks, such as member discounts, free shipping, early access to sales, and longer return periods.

Some retail cards are co-branded with Visa, Mastercard, American Express, or Discover, so you can use them anywhere. Store-only cards, such as those from The Gap Companies, Macy’s, Ross, Victoria’s Secret, Home Depot, and Lowe’s can be used only to purchase things from that retailer.

Because store cards have significantly higher interest rates than most other credit cards—28.93 percent, on average, according to Bankrate.com—you shouldn’t even consider these cards unless you plan to pay the balance off in full each month.

Don’t let salespeople rush you into applying for a store’s credit card. It’s not a snap decision. If you are planning a large purchase and are considering signing up for a retailer credit card, review all terms before you head to the store, Rathner said. If the card makes sense for you, after looking at the terms and conditions, you can apply online, and then take advantage of the sign-up bonus when you go shopping.

Secured Credit Cards

A secured credit card is a good option for those with low credit scores or slim credit histories who don’t qualify for conventional credit cards.

With these options, the credit limit provided by the card is equal to the amount you deposit with the lender as collateral, typically $200 to $5,000.

The interest rates on most secured cards are significantly higher than other types of credit cards. Even top-rated secured cards charge 26 to 31 percent interest, so it’s important not to carry a balance.

Because your payment history will be reported to the credit bureaus, stay below your credit limit, and pay off your bill in full and on time each month. That will help you build up your credit scores, and allow you to apply for a conventional credit card with a higher credit limit and lower APR. With some lenders, you will automatically graduate to an unsecured card after making a specific number of consecutive on-time payments.

How Many Credit Cards Should I Have?

You don’t need more than one, but there can be advantages to having a few.

“Obviously, it’s more emergency spending power, but it also gives you access to better rewards, and it allows you to take advantage of attractive signup perks that might come around every so often,” said Jill Gonzalez, an analyst at WalletHub. “There’s also more information reported to major credit bureaus each month, so you can build credit faster if you need to.”

On the other hand, it’s easier to rack up credit card debt when you have a wallet full of cards, and, because there are more due dates to monitor, it’s easier to miss a payment.

Are the Cards I Have Still the Best Options for Me?

It’s a good idea to look at the cards you have every year or so, to see if they’re still a good fit with your lifestyle. For example, an airline rewards card doesn’t make sense if you’ve cut back on your travel.

Rather than close the account, which will lower your credit scores, consider checking with the card issuer to see if it can switch you to a different type of card that works better for your current situation. Maybe there’s one with a lower interest rate, no annual fee, or rewards that make more sense.

More Info from the Consumer Financial Protection Bureau:

• Credit Card Basics
• Six tips to consider when you’re offered a retail store credit card
• Where can I get my credit scores?

Listen to our Consumerpedia podcast “Dealing with Debt.”