Credit Card Basics: How to Choose a Credit Card

A credit card can be a useful tool or it can be a dangerous weapon. Most of this depends on you — the best credit card in the world won’t help if you spend beyond your means. American adults carry $3,752 in average credit card debt. I lived a decade mired in it and I don’t recommend it to anyone.
If you’re responsible, however, a credit card can be both convenient and efficient. In the first part of this series, I noted that I save 1% on my utilities by paying with my cash-back credit card. These are expenditures I’d make anyhow, but the card saves me money. (As a bonus, using the credit card helps with my quest for a paperless personal finance system.)
But there are hundreds (thousands?) of different credit cards to choose from. You can compare each card against the average credit card rates, but beyond that how can you tell which is best?
How to choose a credit card
When readers have asked me for credit card recommendations in the past. I’ve always declined. First, I’m still not completely convinced that credit cards are a good idea. Second, I don’t have the resources to judge which cards are best. I do know, however, that it’s important to choose the right card for your lifestyle:

• If you are are someone who revolves a balance credit card debt, focus on cards that offer low interest rates (especially on balance transfers) — and put a stop to new charges.
• If you pay your balance in full every month, find a credit card with no annual fees and a solid cash rewards program.
• Some credit card users have special needs. If you spend a lot on gas, consider a gas credit card that gives added rewards on auto expenses. If you travel a lot, look for a card with rewards for flights and lodging.

When choosing a credit card, Money magazine recommends you pay special attention to the Schumer Box, a prominent table in every credit card application. In general it’s important that you understand the different aspects of the credit card application. Look for:

• An annual percentage rate of 11% or less on purchases.
• Low rates on other loans, such as cash advances or balance transfers. (If you’re doing a balance transfer, find a card that offers 0% APR, at least for a year.)
• Reasonable penalty terms. Find the penalty rate (or default rate), and follow the asterisk to see what triggers it.
• Finance charges that are not computed using two-cycle billing. (Two-cycle billing sucks.)
• No annual fee.

Don’t choose a card just because it offers a signup bonus or because it gives you a discount at your favorite store. Read the terms and conditions. Understand the card’s limitations. Remember: your goal is to pick a tool, like a vacuum cleaner. You’re not looking for a one-time bonus, but a long-term relationship you can live with.
The Best Credit Cards
Consumer Reports wrote an article about using credit cards sensibly without falling prey to their traps.
The folks at CardRatings.com have compiled a list of credit card offers in the table below which breaks out many of the card details so you can compare interest rates and items such as balance transfer fees. The CardRatings editor, Curtis Arnold, has also provided his rating for the cards.
Below the table, the CardRatings research staff compiled a list of the best credit card offers, and their top picks for the best credit cards out there.

Best Low Interest Rate Cards
If you’re more interested in a rock-bottom interest rate than cash back, merchandise, or travel, here are some of the very best low-interest rate credit cards available. The first two are based on straight APRS, the second two based on low rates for new accounts only:

• Citi® Platinum Select® MasterCard®. As a new card member, get 0% intro apr for 21 months on purchases and for 21 months on balance transfers. Permanent rates 11.99- 20.99% variable rate*.
• Simmons Visa® Platinum. This bank (actually a collection of Arkansas community banks) has one of the lowest APRs in the industry.
• Iberiabank Visa® Classic. This credit card issuer was one of the first in the industry to get rid of over-limit fees. The interest rates on this card are also one of the lowest in the industry.
• PenFed Visa Gold Credit Card. PenFed has no annual fee and a 4.99% interest rates on balance transfers for 24 months. Its balance transfer fee is also low–2.5%–with a $10 minimum and $100 maximum.

Best Cash Back Cards
You can’t beat cold hard cash, no matter what the state of the economy. Here are the top credit cards that offer the best percentage cash back deals:

• Schwab Bank Invest First® Visa® Credit Card. You’ll need to have a Schwab One brokerage account to get this card. But it’s worth it to sign up: This is one of the best cashback credit cards out there. The Visa Signature card gives you a straight 2% cash rebate on everything you buy with the card. There are also no limits and no restrictions.
• TrueEarnings® from Costco and American Express. Are you a Costco member? You could earn a dollar for spending $100 at most merchants who accept the American Express card. These cashback rewards include 3% back for gasoline purchases up to $3,000 (after which you’ll get 1%), 3% for meals at restaurants, 2% for any travel, and 1% for any other purchases.

Best Travel Miles Cards
If accumulating travel miles to a trip to Europe or anywhere else in the world is a better incentive for you than cash, try these cards:

• Citi Premier® Pass. For every dollar you purchase using this credit card, you’ll get one point toward a future airline ticket on partner airlines. If you use the card to fly, you’ll get one point for every three miles you travel. You can easily track your points in the reward redemption program on Expedia (and you can track fares using these points instead of dollars).
• PenFed Premium Travel Rewards American Express® Card. You need to be a member of the Pentagon Federal Credit Union to qualify (to enroll as a member, you need to be in the National Military Family Association). This card offers up to five points in travel rewards for every dollar spent. Cardholders of PenFed are rewarded with all kinds of special travel deals ranging from hotel upgrades to discounted access to airport executive lounges worldwide.

Best Reward Points Cards
If you’d rather not have your points limited to airline travel, try these cards:

• Fidelity Investment Rewards American Express Card. Card members get two points for every dollar they spend. The redemption system is online and easy to negotiate: you can convert 5,000 points into a $50 deposit to qualifying Fidelity brokerage accounts. But if you would rather spend the cash on something more frivolous than your retirement, you have that option too–there’s a list of travel and luxury retail rewards as well. And there’s no hurry to redeem the points; you can take up to five years to turn them in.

Best “Impaired/No Credit” Credit Cards
These are not the old subprime lenders of pre-crash era; the new poor/fair credit card lenders are both financially sound and ethical:

• Citi Secured MasterCard. While Citigroup was among the financial institutions under scrutiny by the feds in 2009, this secured MasterCard is one of the better “no credit” credit cards. While most secured credit cards require a deposit in a statement savings account (which earns little to no interest), Citigroup instead asks cardholders to use an 18-month certificate of deposit that gets better interest than a savings account. There is a low annual fee, but this card can be used to not only rebuild credit, but also earn some money. At the end of the 18 months, if you have paid your credit card on time every month, you can get an upgrade to a traditional unsecured card.
• Bryant State Bank MasterCard. This is a small, little-known bank, but it makes the list because of its unique and ethical approach to the subprime credit card market. Many of this company’s approaches to serving customers with bad credit have made it into the Credit CARD Act of 2009. Card holders can rebuild credit affordably without leaving a deposit.

Most Innovative Credit Card and Programs
New banking regulations take away price-gouging penalties when you miss a payment or exceed credit limits. But some lenders are taking a more positive approach by rewarding good consumer behavior.
Citibank and Discover Card offer incentives for paying on time and managing limits. Citi’s Forward Card gives its members up to 2% in interest rate reductions for on-time payments. Discover’s Motiva cash-back program refunds up to two month of finance charges after credit card bills are paid on time for a year.
Chase Blueprint members offers options to its members on items they want paid back quickly. Charges can be put on “short-term” or “long-term” status, each with varying interest rates and minimum payments. You can even choose when you want to finish paying off your balance and Chase will put you on a special payment plan to reduce your debt in that time period. Both Chase Slate and Chase Sapphire offer Blueprint.
Remember: terms of the above offers are subject to change. Read any offer thoroughly before applying. And please, do not sign up for a credit card if you’re not certain you can handle the responsibility. You can research other cards at the following sites:

• CardRatings.com is part of U.S. Citizens for Fair Credit Card Terms, a consumer advocacy group devoted to educating consumers about credit cards. This site also has information for U.K. and Canadian consumers.
• IndexCreditCards.com has what is probably the longest list of credit cards to compare and choose from online, with over 1,200 cards. They also have credit card calculators that calculate how long it will take you to pay off your card or how much additional to pay to get it paid off by a certain date.
• The Fat Wallet forums have a great what credit card should I get? FAQ.
• FiveCentNickel maintains a list of current balance transfer credit cards.
• Credit Addict is a newer site about credit card news, deals, tips, and hacks. The author provides more personal reviews than other sources.
• In Canada, try Money Tools, a website run by the Financial Consumer Agency of Canada. It provides an interactive credit-card selection tool.

Please make sure to double-check offer terms at the card issuers website as terms change frequently and the information above may not be up to date by the time you read this.
If you choose to use credit cards, make a commitment to use them responsibly. I believe that most of the people who read this site are ready to do so. Like me, you may have had trouble in the past, but the fact that you’re willing to learn more about personal finance demonstrates that you have some semblance of discipline. Use it.