What is a credit card?
A credit Card is a special financial facility that allows customers to access a credit limit provided by the credit card issuer and pay for various transactions with online and offline merchants. For instance, credit cards like a Visa or Mastercard can be a great alternative to a full loan in cash. As customers pay the minimum monthly payment required by the issuer, they can continue to borrow money if they do not reach the credit limit.
Why use a credit card
Credit cards have many competitive advantages over debit credit cards and other alternative financial solutions. For instance, if customers pay the entire balance before the due date, they can get up to 50 days of interest-free credit. That is one of the most significant reasons cardholders opt for credit cards. Unlike debit cards that deduct money directly from the customer's bank account, credit cards allow clients to make payments later and pay the minimum due.
A credit card can also be a highly appropriate tool in an emergency, as customers can use it to withdraw cash from ATMs.
Another significant reason for using credit cards is a reliable system of security.
Also, credit cards can be used to make online purchases every day. Some purchases and goods may be very costly, so credit cards can be quite convenient for customers, as they offer many perks, multiple rewards, and points for purchases.
It may also be very beneficial if clients join a rewards program to earn additional points and get cashback, travel, and gift cards.
Another reason for credit card utility is its numerous dining bonuses or groceries for customers who usually eat outdoors or make purchases at supermarkets. These are crucial benefits of credit cards, as other financial solutions do not offer a wide variety of rewards. They can not be obtained if customers pay by cash or debit.
In the case of making a larger purchase, customers may also find credit cards very handy, as they allow not to withdraw all money out of the bank account all at once. In addition, there are larger points for bigger purchases, which a client gets quickly.
Customers can get additional benefits, such as card members' bonuses, if they pay the bill on time. Hence, in case clients make a large purchase, it is very helpful to a client. Be sure to opt-out of credit cards with promotional rates when opting for a credit card to make bigger purchases. On the one hand, it may be beneficial, as clients can consider paying off the balance with zero APR before the end of the interest-free period and use it for bigger purchases. If clients still have a balance after the period, additional charged interest may be accrued.
Credit card to build credit
Credit card issuers usually report customers' payment history to one or more of the three major consumer credit bureaus, Equifax, Experian, and TransUnion. Clients need to have a good credit history and FICO score. Making payments on time may significantly boost and build credit. Also, It is paramount not to miss payments, as this will negatively impact the client's credit.
Payment history takes up the larger part of the credit score, so it's important to utilize the card in the most effective way possible. Customers who use credit cards regularly and make consistent payments will build their credit much faster.
Credit card for online purchases
This is one of the widespread ways to use credit cards. A credit card is quite a safe way to pay for purchases when shopping, as they usually have special consumer protections to secure customers' personal data. Also, customers can get a refund faster and easier when using a credit card.
Credit card to book travel
Most credit cards give customers many rewards points that can be used on trips, giving travel miles on purchases. These may cost an additional amount of money sometimes. Some credit cards also provide travel protections when clients book trips that usually go with auto rental coverage, trip cancellation, and lost luggage. Hence, if customers use a credit card wisely to book a trip, it may benefit them.
How to compare credit cards
There are many ways to compare credit cards and choose the most appropriate one. Some well-known and trusted methods can be used to save the client's time.
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Define the financial situation
Before setting on a particular credit card, a customer should get to know their financial habits to choose the credit card appropriately. There are usually cards for customers with excellent credit scores, and many low-interest credit cards are available for clients who want to establish their credit history. So, customers need to consider their financial situation carefully before deciding.
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Define the reason for choosing a credit card.
Customers who are avid travelers may consider special reward credit cards and get some air miles, points, and other perks for traveling. If clients are small business owners, a cash back business credit card can help them pay for company expenses. Customers who want to build credit can consider a card with a 0% introductory APR. If they want to make a balance transfer, they can compare various balance transfer credit cards that offer 0% balance transfers.
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Compare Credit Card Rewards.
When choosing credit cards, be sure to compare credit card rewards. Some credit cards offer cash back for statement credit, while others provide points or travel miles for every dollar clients spend. So, customers need to compare all basic points and cashback credit cards to find their most appropriate credit card. It may be a low or no-annual-fee credit card or a specialized credit card with higher fees and rewards. The choice depends on an individual's situation.
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Compare Annual Fees.
Also, customers can compare credit cards with an annual fee, which usually varies from zero to upward of $500 for some travel cards. Cards with bigger rewards usually charge higher annual fees. When comparing annual fees, ensure that the value of the card's rewards and benefits make the fee worthwhile.
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Compare Interest Rates.
Credit cards can have variable interest rates and APRs for purchases, balance transfers, or cash advances. So, when customers compare different credit cards' APRs, they have to be sure to consider whether they are going to pay off the statement balance in full every month or not. If customers plan to make a large purchase and want to pay it off over time, they are better off considering 0% introductory APR credit cards.
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Compare Additional Fees and Penalties.
Besides APRs and annual fees, common credit cards usually include balance transfers, cash advances, foreign transactions, late fees, and returned payment fees. Other charges depend on the type of credit card. So, customers have to choose a credit card that corresponds to their needs, and the amount charged.
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Compare additional pros.
Many credit cards offer additional benefits for extra charges. Hence, compare credit card extra benefits according to their personal needs.
How to get the best credit card
To choose the financial institution for a credit card, customers have to pay attention to credit limits, which are the maximum amount of money clients can spend on their credit card offered by them. Also, consider the fees, as, for instance, travel rewards cards may have very high fees.
Check the company's rewards and incentives and the bottom line. So, before applying for a credit card, compare rates, fees, and other card details revealed by different credit card institutions.
To apply for the card, customers can use various ways to apply, either in person, by mail, on the phone, or online. First, clients must check their credit scores and get to know various interest rates offered by different lenders.
Then customers must check their FICO score with credit-reporting bureaus Experian, Equifax, and TransUnion and look through credit inquiries.
Second, they must compare offers and find the card most appropriate for them, considering annual fees, interest rates, rewards, and sign-up bonuses.
The next step is filling out an online application. For that, clients have to find the "Apply Now" button on the site and fill in the application form providing information such as their name, address, Social Security number, annual income, monthly expenses, and bank account balances.
After that, apply. Note that applications are considered within 10 to 14 business days.
Application is available to customers at least 18, with a good credit history, a stable source of income, and a valid Social Security number. Clients with a middle credit score can try to apply for a secured credit card to build up their credit.
Wells Fargo cards
The Wells Fargo Active Cash offers a 2% cash rewards rate on purchases and charges no annual fee. It allows customers to earn a $200 cash rewards bonus, unlimited cash rewards on purchases, get 0% intro APR for 15 months, balance transfers, low variable APR, a low fee of 3%, and cell phone protection. This card has a balance transfer fee, transaction fee, and no travel transfer partners.
Chase cards are a great suit for travel and dining. It allows clients to earn 60,000 bonus points, get various rewards, get $0 delivery fees, and lower service fees. Also, it provides customers with many travel and shopping customer protections. The card has some drawbacks as well. It has an annual fee and no introductory APR.
Discover cards will be a good suit for students with average or limited credit scores. They have no annual fee, no penalty APR, and provide unlimited rewards, up to 5% cash back on everyday purchases at different stores. Another benefit is that it requires no credit score to apply, no annual fee, and allows clients to build credit quick, provisioning 0% APR on purchases for six months. There are still some cons to using this card. For instance, the 5% bonus cashback rate is limited, bonus categories can be activated quarterly, and there is a low 1% base reward rate.
Reward credit cards
The primary benefit of a rewards credit card is that it offers incentives for using the card, which usually includes cash back, points, or miles that customers can exchange for goods, services, airline flights, and other things. Some reward cards also offer other benefits, like higher levels of customer service and perks.
According to some research, the best rewards card for travel rewards is the Chase Sapphire Reserve.
It has quite a high annual fee and eligibility requirements. To qualify for this card, customers must have an excellent credit score of nearly $700.
Best reward credit cards include Wells Fargo Active Cash Card, Chase Freedom Unlimited card, Chase Sapphire Preferred, Capital One Venture Rewards Credit Card, and others.
