Whether your aim is to build your credit history or earn travel points to fund your next adventure, a credit card is the right financial tool for the job. Credit cards allow you to spend borrowed money up to your credit limit, which you then pay back before the end of your billing cycle—or else you’ll incur interest.
Yet while all credit cards work relatively the same way, they don’t all offer the same benefits. Thus, it’s important to decide which type of credit card is right for your spending habits, goals, and lifestyle before you submit an application.
Understanding Your Spending Habits and Needs
Before you select your credit card provider, it helps to clarify your financial goals. Here are a few questions to get you started:
- How much money do you typically spend each month?
- What are your largest spending categories? (Groceries, gas, travel, shopping, etc.)
- What are your current financial targets? (Building credit, paying off high-interest debt, saving up for a vacation, saving money on expenditures, etc.)
Based on your answers to these questions, you can decide whether you’re looking for a low-interest card to pay for everyday purchases or searching for one that establishes a credit history, saves money on gas, or earns rewards that you can put toward your favorite hotel chain.
Cutting Costs: Lifestyle Credit Cards from a Credit Union
You can obtain a credit card from traditional banks, online lenders, and credit unions. Of these options, credit unions typically offer the strongest benefits. They stand out for their:
- Low fees
- Low interest rates
- Flexible repayment options
- Free financial education
- Excellent customer service
- Exclusive perks
If you decide to apply for a credit card from a credit union, you need to become a member of one first.
Types of Credit Cards
Now that you have a clear picture of your financial situation, you can determine which type of credit card is the right fit.
Here’s a brief overview of four main types of credit cards:
- Secured credit cards – In most cases, you need a good credit score to qualify for a credit card. But what if you have a low credit score or no credit history at all? In this case, a credit-building credit card (a.k.a., a secured credit card) can help. This type of credit card requires a security deposit equal to your credit limit. Since lenders aren’t risking any of their own money, these types of cards are easier to qualify for. After using this card to boost your credit score, you may be able to “graduate” to a non-secured card in the future, at which point you’ll receive your initial security deposit.
- Student credit cards – If you’re in college, you could still qualify for a student card with little to no credit history. Like secured credit cards, these types of cards can help you build credit so you graduate college with a high credit score. Keep in mind that student credit cards often have small credit limits and other limitations. Fortunately, if you manage your credit card well, you may be able to upgrade it upon graduation.
- 0% APR balance transfer credit cards – APR is the annual cost of a credit card’s interest and fees expressed as a percentage. If you’re currently carrying a balance on a high-interest credit card, finding one with a 0% introductory APR can save you a lot of money. That’s because these credit cards don’t charge any interest for the first 12+ months. By transferring your balance to one of these types of cards, you can pay down your debt interest-free until the introductory period is over (at which time your balance will be subject to a new APR). Keep an eye out for balance transfer fees, however.
- Rewards credit cards – Maybe you simply want to earn money, points, or miles on your monthly spending. In this case, a rewards credit card may be right for you. There are a wide range of rewards credit cards you can choose from. Some let you earn a higher percentage of cashback on specific categories, such as gas or groceries, while others may provide lucrative travel miles or hotel points. Due to this variety, it’s important to clarify which rewards you want most and find a credit card that specializes in them – or lets you pick your favorite rewards category.
Matching Features to Your Lifestyle
Within each of the above types of credit cards, there are multiple iterations and variations of each card. Rewards credit cards, in particular, exist to mirror every type of spender and budget.
So, let’s tackle the fun side of credit cards—matching the right card with your lifestyle:
- For the Frequent Flier – Travel rewards cards are credit cards that provide valuable rewards for spending on flights, hotels, and other travel-related expenses. These cards typically track rewards in “miles,” which can then be spent on discounted flights, upgrades to first class, and other incentives. Additionally, some travel rewards cards allow their members access to luxury airport lounges.
- For the Fine Diner – For those who love the finer things in life—a credit card that provides “points” for restaurants, entertainment, and other opulent purchases is the perfect credit card. Points work similar to miles; they can be traded in for a number of discounts, specialty experiences, or even cashback.
- For the Gas & Groceries Essentialist – A cashback credit card is the ideal option for those who use their credit cards on the essentials—groceries, gas, and other everyday items. Certain credit cards provide upwards of 3-5% cashback, putting money right back in your pocket on purchases you were going to make anyway.
- For the Brand Advocate – If you regularly shop at a specific store—think Macy’s or Walmart—you may be the perfect candidate for a branded credit card. These credit cards typically come with major perks and discounts when shopping at that particular business. Be wary, however, these bonuses may not extend to other stores. It’s best to have these credit cards as just one in your arsenal.
- For the Cashless Purchaser – Bringing cash with you everywhere you go can be a nuisance. This is especially true if you’re weighed down by coins to make exact change. If you’re someone who intends to use their credit card for every purchase under the sun, then you should look for one that offers a high credit limit and a flat rewards bonus on all purchases.
How you choose to use your credit card should dictate the type of credit card you own. However, while your lifestyle will be a signal, don’t forget to look into the fine print around fees and interest rates.
Credit Card Fees and Interest Rates
After narrowing down your preferred type of credit card, you can start shopping around and comparing important features across lenders, such as:
- Interest rates
- Annual fees
- Late payment fees
- Foreign transaction fees
These factors can make your credit card usage considerably more expensive, so you’ll want to look for a credit card with the lowest rates and fees you can qualify for. As noted above, credit union credit cards have lower fees and interest rates than those from other types of lenders.
Credit Limit and Credit Utilization
Your credit limit determines how much you can spend using your credit card before you must repay some of its balance. This is typically determined by your creditworthiness—if you have a high credit score, you can typically qualify for a higher credit limit.
It’s important to find a credit card with a credit limit that’s sufficient for your needs. However, just because you have a high credit limit doesn’t mean you should max it out. In fact, you should avoid spending more than 30% of your credit limit at any given time.
The reason? Credit utilization is one of the leading factors used to determine your credit score.
This measurement is the percentage of your credit limit you’re currently using. Holding a credit utilization ratio above 30% for long periods of time can have negative credit score consequences.
Making the Final Decision: CUSelect Can Help
By now, you should have a better idea of which type of credit card is right for you, whether that’s a secured credit card, student credit card, 0% APR introductory balance transfer card, or rewards credit card.
Next on the to-do list? Find a lender and submit your application. Credit card applications are quick and easy to fill out. Once you submit yours, you may even receive instant approval.
Want to experience credit union advantages? Find a credit union near you.
