Credit cards are like clothes in some ways. Some are sexy, some are boring, some are cheap, some are expensive, some are flimsy, some are durable, so on and so forth. What works for your friend might not work for you: the fees, rates, limits, and perks are designed with certain consumers in mind. Those who travel for work all the time would be wise to use a card that earns them frequent flyer miles. Similarly, someone who spends a great deal of money in general would be wise to get a cash back rewards card. They’re not one-size-fits-all, is what we’re trying to say here.
When considering a credit card, you should take into account a number of lifestyle factors: how much money do I spend with my credit card? how do I pay back my debts? do I travel a lot? a little? Ideally, your card should conform to your lifestyle and not the other way around; banks and card issuers would love it if you spent more than you can afford in some foolhardy attempt to chase rewards. In part, that’s why rewards exist: to encourage spending through a channel that generates fee and interest revenue. So finding a card that fits your lifestyle will not only help you meet your financial goals, it could also help prevent you from overspending.
Here’s a few examples to demonstrate the different sort of card you might need for different lifestyles, taking financial needs and habits into account.
If you have no credit history, you’re probably pretty young, meaning you probably don’t have much money, nor do you know exactly what you’ll do with a card that gives you access to so much spending power. Your goals are to spend very little on the card and pay down your balance every month, meaning you should get a card with a low limit, and a low interest rate. Your interest rate shouldn’t be your primary concern, because you plan on paying at the end of the month. That said, get one with a low rate if you can — it can never hurt.
Rewards are irrelevant at this stage in your life, but cash back never hurts, so long as you aren’t paying a fee for it.
The New Parents
At this point in your life, you likely have a decent credit score established. Unlike when you were in college, you need to spend a lot of money in sometimes unforeseeable ways — you have a baby! So, odds are you might not be paying down your balance at the end of every month. You might need to finance some larger purchases — a crib, clothes, etc — over the course of the crazy first year of parenthood.
So you’re going to want to find something with a higher limit and a lower interest rate. A low interest rate will help you finance the purchase of all the stuff you need for your baby, and the higher limit will help you keep your credit score high while you do this — remember: carrying a balance of more than one-third of your credit limit can negatively affect your score. You won’t be traveling much, so a rewards card would be a waste of an annual fee.
You’re back and forth to Moscow and Beijing every other week, and you take clients out to obscenely expensive meals all the time. You’re not a big spender by nature, but it comes with the territory. You like getting treated well wherever you stay, because you’re home so little — you might as well make yourself comfortable. A high-end rewards program works perfectly for you. You don’t mind the high interest rate because you pay your balance down every month; you don’t mind the annual fee because you more than earn it back in perks at hotels and free flights and the like.