What is a ‘good’ credit card?

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Credit Cards
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Asking the question, “What is a good credit card?” is kind of like asking “What is a good car?” as the answer will always depend on who you are and what you are using it for. A good car for a large family might be a minivan, while a compact might be the right car for solo commuter.

So let’s look at a few of the different types of credit card users and get a sense for what a “good” credit card would be for each.

People who are new to credit cards

Students, young adults, recent immigrants and anyone else who is new to credit cards will have different needs than others who have been using them for many years. First, you’ll want a simple card with low rates and fees, as your goal will be to learn how to use a credit card responsibly while incurring as few costs as possible.

You might start with the place where you already hold a checking or savings account. Nearly every bank and credit union offers credit cards, and most will have a simple card with no annual fee and no rewards. And when you need to make a payment, it’s simply a matter of transferring funds between accounts. You don’t have to create a new login or learn how to manage your account on a new website.

RELATED: What you need to know about credit card debt

Good credit cards for getting out of debt

If you have credit card debt, a good credit card will be one that helps you to pay it off as soon as possible. Many cards offer 0% APR promotional financing for balance transfers. When you transfer your existing balances to one of these new cards, you can avoid interest charges during the promotional financing period. In fact, you can even pay off your debt more quickly, as 100% of your payments will go towards the principal, not interest charges.

A good credit card for this purpose will have an interest-free promotional financing offer that lasts at least 12 months, while the best will extend to 15 or even 18 months. You also need to look at the balance transfer fee, which is usually 3% of the amount transferred. However, some cards have fees of as much as 5%, and there are a few rare cards with no balance transfer fees at all.

Good credit cards for rebuilding credit

If you’ve experienced job loss, divorce or major medical bills, you might have come away from it with bad credit. And if you’ve gone through bankruptcy, foreclosure or just a long string of unpaid loans, then you definitely need to rebuild your credit. A good credit card can be a tool to rebuild your credit, but only if you manage it responsibly by always paying your bills on-time and carrying little, if any, debt.

First and foremost, a good credit card to rebuild your credit will allow you to open an account, even with your bad credit. There are two types of credit cards available if you have bad credit: subprime cards and secured cards. A subprime card may be from a bank with an obscure name, or perhaps one that’s meant to sound kind of like a major bank that you’ve heard of. It will have very high interest rates and numerous fees, while offering you few benefits and a very small line of credit.

I would avoid these cards and focus on a secured card instead.

Secured cards work just like any other credit card, but they require you to pay a refundable security deposit before opening your account. The size of your deposit becomes your credit limit, and the security deposit is only used if you default. Like any other credit card, you’ll receive a monthly statement and must make the minimum payment. After a year of on-time payments, most secured card holders find that they can qualify for a standard, unsecured card and will have their deposit refunded. The best secured cards will be offered by a reputable bank that can eventually offer you an unsecured card. And, best of all, many of these top secured cards have no annual fee.

Good credit cards for earning rewards

When you always avoid interest charges by paying your statement balances in full, then you should be earning as many rewards and benefits as possible. The best card for you will depend on how you use your cards and its rewards. Frequent travelers will want a card that offers them airline miles, hotel points or other rewards that they can use for free trips. At the same time, a good travel card will also feature perks like free checked bags, hotel room upgrades and travel insurance policies.

Others might find the most value in a cash-back credit card that offers rewards that can be used to pay for anything. Some cash back cards will offer a high level of cash back on all purchases, like 1.5% or even 2%. Others can offer bonuses of as much as 5% on some purchases, but only 1% elsewhere. And when it comes to reward credit cards, the one with the lowest annual fee might not be the best. If you can receive hundreds of dollars of rewards and benefits, it may be worth paying an annual fee.

RELATED: New Barclays Arrival Premier card: Worth a look if you love to travel

One last thing

For millions of Americans, there’s no good credit card for their needs. If you’re unable to pay your bills on time, or you use your credit card to incur debt, then you should be using another form of payment like cash or a debit card (though you should be wary of when and where you use a debit card). Also, if you find yourself spending more money on a credit card then you would have spent with cash, then it’s also the wrong method of payment for you.

All credit card users should strive to pay their balance in full, and there’s nothing wrong with admitting that you can’t do this, and using another form of payment instead. By considering how you will use your credit cards, you can ultimately decide the right card for your needs.

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Jason Steele About the author:
Jason Steele is a journalist who specializes in covering credit cards, award travel, and other areas of personal finance. You can check out his website at JasonSteele.com.
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