Your credit report
Most credit cards are for specific types of customers. If you apply for a card that is way out of reach for you, you’ll get rejected, which can be a negative on your credit report, so if you are nowhere near the requirements for a credit card, you probably want to work on addressing that before you apply. However, having a credit card that is far below what you qualify for typically results in leaving benefits on the table because the benefits on higher tier cards are usually a lot better than beginner cards. A quick internet search can usually give you a pretty good idea of what the requirements are for a given card.
What you spend your money on
A major component to picking the right credit card is figuring out what areas you spend the most money on, and finding a credit card that offers rewards for those categories. For instance, if you spend most of your money on restaurants and grocery stores, you’ll probably get more rewards from a credit card that is tailored towards restaurants and grocery stores than one that offers its rewards on office supplies. Try making a note in your phone whenever you spend money if you aren’t sure where you’re spending your money. Bonus points if you make a budget and track all of your spending!
How much money you spend
The more money that you spend, the larger the impact of the credit card that you have. If you’re spending $200 per month on your credit card and are missing out on an extra 2% that you could be getting from a different credit card, you’re only missing out on $4/month, which is not ideal, but also not worth losing sleep over. However, if you’re spending $20,000 per month, all of a sudden you’re missing out on $400/month, or $4,800/year.
In addition, some cards offer very attractive signup bonuses when you spend a certain amount of money within a few months of signing up for the card. Almost all of these companies only offer one chance at the bonuses, so it is important to consider your ability to meet that spending requirement when making that decision.
Benefits vs Fees
Many credit cards offer benefits like perks, rewards, and credits. Many of the cards that offer good benefits also charge a fee. So how do you know which one to get?
You start crunching some numbers. First, you want to go through and make a list of all of the benefits that the credit card has to offer. Then you want to figure out which ones apply to you and which ones don’t. The credits are pretty easy to figure out because they are a specified dollar amount.
Rewards are slightly more difficult to account for, but it comes down to relatively simple math; you figure out roughly how much you spend in the categories that you’re comparing, find the difference in rewards between the cards that you’re comparing, and then multiply that difference by how much you spend. Let’s say that you’re comparing two cards that offer cash back on restaurants and groceries. You spend about $5,000 per year in a given category, and one card offers 4% back and the other offers 2% back. If you multiply the $5,000 that you spend by the 2% difference between the two, the difference accounts for about $100 per year.
Soft perks (lounge access, hotel elite status, etc.) can be trickier because they are very subjective. For instance, some people absolutely swear by airport lounges, while others are not impressed by them. You will have to do some soul searching to determine you feel about these perks and how relevant they are to your life. If you are a frequent traveler and usually stay in higher end hotels, you’ll likely get more value out of hotel elite status than someone who rarely travels and/or sticks with AirBnb or motels, especially if you really enjoy the higher status benefits.
*Worth noting*
Some cards charge fees on foreign transaction, so you should look into that if you travel abroad often and are planning to use that card on your trip. Additionally, not everywhere in the US accepts American Express and Discover, and it’s not uncommon for foreign businesses to not take them, so having either at least one card that’s Visa or Mastercard is a probably a good idea, especially if you are planning to travel abroad a fair amount.
Once you have a reasonable idea of the value of the benefits, you can subtract any annual fee on the card to get a final total of the rough value that the card will bring you. You can then use that to compare different credit cards or decide whether a certain card is good for you. It may seem complicated at first, but it gets easier with practice, and in no time, you’ll be able to skim a credit card offer and figure out if it makes sense for you.
Now that you know what to look for, you can check out our favorite cards here!
Seaotter Fitness 