By Megan Doyle | American Express Credit Intel Freelance Contributor
5 Min Read | November 30, 2020 in Cards
Comparing credit cards can feel overwhelming because there are so many of them, and they have a wide range of different characteristics.
But a careful analysis of several factors, including credit card rewards, fees, interest rates – and your unique personal finance needs – can help you choose.
If you ever seriously try to compare credit cards, you might notice how much it’s like navigating the cereal aisle at the grocery store. The abundance of possibilities is alluring, but if you really try to make an informed, analytical choice, you could become a victim of “analysis paralysis.”
It doesn’t have to be that way. To help make your credit card comparison a little bit easier, here are seven key factors to consider. (You’re on your own with the cereal.)
Before you start comparing credit cards, it’s best to understand your own financial profile. Your credit score and credit history play a big role in what type of credit card you can get. Most high-end credit cards are typically reserved for those with excellent credit, though there are plenty of cards available for those simply looking to establish their credit history, too.
It also helps to know your spending habits. Remember that a credit card isn’t a source of free money – you have to pay back every purchase, and any unpaid monthly balance will likely start to collect interest.
Whether you’re getting your first card or adding to a collection, ask yourself why you want a credit card. Your answer will be the basis for determining which credit cards to compare and, ultimately, which one to choose. Here are a few reasons you might want a credit card and some matching card types:
One of the biggest benefits to having a credit card is that many offer rewards for purchases you’re already making. Some cards offer a percentage of purchase spending as cash back, redeemable for statement credit, while others offer points or travel miles for every dollar you spend. If you compare basic points or cash back credit cards, you’ll usually find low or no annual fee credit cards that offer a small percent – 1 or 1.5 – of cash back rewards or points for purchases in any spending category. On the other side of the spectrum are specialized cards with higher fees that offer higher rewards for specific spending categories, like travel, dining, entertainment, groceries, and more.
Understanding how you plan to use your card will help you choose the best one for you. For example, hotel or airline credit cards might not make much sense if you rarely fly, and you probably wouldn’t want a gas credit card if you don’t own a car.
Another way to compare credit cards is by annual fee, which can range anywhere from none to upward of $450 for “elite” travel cards.1 Typically, cards with more lucrative rewards charge higher annual fees.2 But that doesn’t mean you can’t find a great rewards card with no annual fee.
When it comes to annual fees, a good rule of thumb is to ensure that the value of the card’s rewards and benefits will make the fee worthwhile.3 If you’re an avid traveler with an airline card that gets you free checked bags, free airport lounge access, and priority boarding, the higher fee might be well worth it. But if you’re not going to use the card often or accrue rewards, take some time to consider whether the annual fee is worth the cost.
Credit cards can have a variety of different interest rates, aka APRs. APRs for purchases, balance transfers, and cash advances, for example, are usually all different. When comparing different credit cards’ APRs, the key thing to consider is whether you plan to pay off your statement balance in full every month. If you do, a card with a higher APR might be a fine choice. But if you think there’s a chance you might carry a revolving balance, you’ll want the card with the lowest APR available – even massive rewards typically won’t compensate for the interest accrued with a high APR. If you’re planning to make a large purchase and would like to pay it off over time, consider comparing 0% introductory APR credit cards.
Along with APRs and annual fees, some common credit fees include balance transfer fees, cash advance fees, foreign transaction fees, late fees, returned payment fees, and many more. Whether you’ll have extra fees depends on how you use your credit card. For example, if you don’t plan to use cash advances or make any balance transfers, you could consider a card that charges extra for those services. Or, if you plan to do a lot of international traveling, a no foreign transaction fee credit card might be the way to go.
Many credit cards offer additional benefits like rental car insurance, airport lounge access, roadside assistance, and extended product warranties, to name a few. But it’s not uncommon for extra benefits to come with a higher annual fee. When comparing a credit card’s extra benefits, consider your needs. Free airport lounge access might sound tempting, but it might not be worth the potential annual fee unless you spend a lot of time in airports.
1 “Complete List of Credit Card Fees to Watch Out For,” US News and World Report
2 “Common Credit Card Fees (and How to Avoid Them),” The Balance
3 “8 Credit Card Fees and How to Avoid Them,” NerdWallet