Picking a credit card is no easy task, and many people leap blindly into the process without doing some research. When it comes to selecting the type of card that best fits your needs and goals, it’s a bit more complex than one might think.
As cash becomes an endangered species, credit cards have taken center stage as a mainstay of American consumer life. For those of us who don’t have credit cards, we turn to our debit cards that essentially function as if they were credit cards. Unfortunately, debit cards are not a wise choice for consumers for many reasons.
In the world of debit cards, disputes and holds involve real cash instead of credit, and can keep your balance tied up for long periods of time. For instance, if a hotel requests a $200 hold on your debit card, suddenly $200 of your balance is in limbo, and unavailable to you. For anyone, it’s better to have imaginary credit unavailable than not having access to the money in your personal checking account.
If you want to protect yourself as a consumer, it’s always better to use a credit card. There are no overdraft fees with credit cards, which can make debit cards a bloody nightmare.
In order to get a credit card, you need to have good credit history. For those of you who are behind, it’s never too late. Still, building credit is a tricky path that takes time, patience and sticktoitiveness.
If you don’t have any credit or are recovering from a black-eye on your credit report, such as foreclosure or bankruptcy, there are secured credit cards. Traditional credit cards are unsecured debt, meaning if you default, lenders have little recourse.
Instead, secured credit cards are a product for risky-bets (consumers with no credit), where you provide a security deposit (usually under $1000) in case you decide to peace out on your bill. Once you’ve demonstrated that you’re credit worthy, it’s likely you can graduate to a normal, unsecured credit card.
Picking a credit card is a little like dating, in the sense that you have to be aware of what league you’re in. You can be cocky and attempt to land a card for which you’re probably not qualified, but your risk of rejection is high.
To know where you stand, figure out what your credit score is. Contrary to popular belief, verifying your credit score can be free. Go to annualcreditreport.com, where you can access all three of your major credit bureau’s scores once a year for no cost. Make sure all information is correct on your report, and be sure to dispute errors. Once you know what your score is, then you can figure out the which card is likely to approve you.
This is where you might be dizzied by all of the options. Many people immediately jump for rewards cards, not realizing that they’re probably not the best deal. Others shop for balance transfer cards (often offering 0 percent APR for more than a year) or a low interest rate. The diversity is mind boggling, so make sure you shop around.
Credit Karma has a good tool that you can use to see which credit card best fits your needs and credit score. Be sure you keep your annual fees and other charges for having the credit card as close to zero as possible.
We live and die by consumer credit. It’s a powerful tool as a consumer to have access to cheap credit in times of crisis, and can be a lifeline when you need it the most.
A couple of smart moves today will save you thousands in the long run, and ensure you a better quality of life as the years roll on.
This article originally appeared on GenFKD.org
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David is the Editor of Bold. He's especially passionate about millennial economic empowerment. A former local news reporter, David is originally from the Little Havana area in Miami, and later became a pioneer resident of the Disney-inspired town of Celebration, Florida. David holds a Master’s in Public Policy from the Harvard Kennedy School.