3 Steps to Determine Which Credit Card is Right for You

Credit cards can be a powerful tool when used properly. Many of us understand that utilizing a credit card and paying it off can help us build up our credit score and qualify for more opportunities or more favorable lending terms. That said, there are so many options to choose from.

Each card is designed for different uses and has specific benefits or drawbacks. Learning about all these options is like learning a new language. Where do you start?

Below is a quick step-by-step guide to help you choose which credit card is right for you or your business.

3 Steps to Select the Right Credit Card

1. Understand Your Spending Habits.

Before selecting a credit card, it’s important to be honest about your spending habits.

Will you be tempted to utilize the card too much (i.e., more than 3% of your limit)? Will you spend more than you can pay off monthly?

If the answer is yes, it may be against your best interest to sign up for a credit card right away, especially one with a higher limit. Another strategy may be to use a secure card or charge card in the beginning.

My first card was the American Express (AE) green card, which I signed up for on the Villanova campus in 1991. As a charge card, I had to pay off the balance in full each month to be able to use it, and that was helpful from a discipline standpoint. Paying it off became a habit, which helped me continue to do so later in life.

If you feel confident that you’re ready to take on additional credit, it’s still helpful to understand your spending habits. What do you spend money on? What would the new credit be used for?

2. Determine Your Personal & Business Profile.

As many people do, I started off with that one card, in addition to my debit card.

Then I went into consulting, and I started staying at hotels. Many of these would offer membership programs or rewards points. I began to travel more and more, not just professionally, but also personally. Over time, I started to recognize my own preferences. I was okay marrying myself to certain brands like American Airlines or Marriott, especially if that meant I could save money on my travel expenses.

I started looking at card options, as well as airline and hotel cards. Understanding and aligning the choices is like learning a new language, but it’s worth it.

I still have American Express account I mentioned above, but not the same card. They stretched into many markets, so I found an option that’s right for me and my family.

3. Analyze the Cost and Benefits.

When I was looking at card options, I kept my spending habits and personal/business profiles in mind. That’s the first step. The next is to do a cost vs benefit analysis to determine the right fit. Consider the benefits and the annual fee or cost of the card. Will you be able to enjoy the benefits? Are they worth the cost?

Many cards offer credits or points, which can be converted to cover certain expenses. It’s important to understand how they convert and if you’ll be able to use them.

For example, some cards may offer credits towards airline tickets, hotel stays, restaurants, or amazon purchases. It only makes sense to sign up for that card if you can use the credits they offer. I liked the American Express Platinum card, so I picked the version best suited for my business.

Not all point conversions provide the same dollar value either. It depends on the card and how it’s utilized. Do the math to see how X number of points converts to X dollars.

Ask yourself, “which of these will yield the most benefits to me?”

Then, compare that to the cost of owning the card. Is there an annual fee? Do those benefits far outweigh the cost, or is there a better option?

Since I travel, I chose a card that provides points on travel purchases. I also book through American Express Travel, which allows me to get 30% of those points back. I prefer to fly on American Airlines, so when a vendor doesn’t take my AE card, I will use my Chase Sapphire card, which gives me points to use towards travel purchases, and it gets me into the American Airlines lounge. I also signed up for a Marriott card, which allows me to accumulate points toward future stays at Marriott properties.

If you travel and have specific preferences, you can sign up for cards that align / offer benefits across the board.

Let’s say you’re not a frequent traveler, but your profile includes a high amount of food and beverage spending. Maybe you’re a regional business and you host most of your client meetings at restaurants. You might prefer a card that offers points for restaurant purchases.

Or maybe you don’t travel or go out to eat very often, and you would prefer cash back. There are many cards that offer cash back on other types of purchases.

Beyond card-specific benefits, you should consider how utilization impacts your other financial goals. The money you’re saving by using the points/cash back is money you would have otherwise spent out of pocket. If you did use cash, you would be paying with money you already paid taxes on. By using points, you’re not using money that was taxed and therefore you’re saving more money.

Plus, low card utilization and a long credit history can help you attain favorable lending terms. If you wish to get into real estate investing, or if you’re just looking to buy a personal property, owning a credit card may help you accomplish those goals.

So, what are your financial goals? Do your plans include a credit card?