Start with what you actually spend money on
The right credit card for you depends almost entirely on where your money goes each month. A card that rewards groceries and gas is useless if you rarely buy either. A card with a high annual fee makes sense only if the rewards you earn exceed what you pay.
Before you look at any card, write down your spending for the last three months. Break it into categories: groceries, restaurants, gas, travel, subscriptions, online shopping, everything else. Add up each category. The categories where you spend the most are where a rewards card can actually save you money.
If you spend $400 a month on groceries and a card gives you 2% cash back, you earn $96 a year. If you spend $50 a month on groceries, you earn $12 a year. That same card might have a $95 annual fee, which would wipe out your rewards entirely in the second case.
Key Takeaways
- Match the card's rewards categories to where you actually spend the most money each month, not where you think you should spend it.
- A card with an annual fee only makes sense if the rewards you earn in a year exceed the fee by a meaningful amount.
- Your credit score determines which cards you can get and what interest rate you will pay if you carry a balance.
- A card with a 0% introductory period on purchases can save you money if you plan to pay off a large purchase over several months, but the regular rate matters after the period ends.
- Rewards are only valuable if you pay your full balance each month; interest charges will erase any cash back or points you earn.
Understand what your credit score qualifies you for
Credit card companies check your credit score before they approve you. A higher score opens access to cards with better rewards, lower interest rates, and sometimes sign-up bonuses. A lower score limits your options to cards designed for people rebuilding credit, which typically have no rewards and higher fees.
You can check your own credit score free through AnnualCreditReport.com or through your bank's website. Most banks now show your score in your online account. If you do not know your score, find it before you start looking at cards. There is no point researching a card that will reject you.
If your score is below 620, you will likely be turned down for most standard cards. Cards marketed for "fair credit" or "building credit" are your realistic options. If your score is 620 to 660, you have some options but not the best ones. Above 700, you have access to most cards on the market. Above 750, you can get the cards with the highest rewards and best terms.
Decide whether you will carry a balance or pay in full each month
This decision changes everything. If you pay your full statement balance every month, the interest rate on the card barely matters — you will never pay it. You should focus entirely on rewards and sign-up bonuses. If you plan to carry a balance, the interest rate is the most important number on the card, and rewards become almost meaningless.
Here is why: a card with 2% cash back and a 22% interest rate will cost you far more in interest than you earn in rewards. If you carry a $5,000 balance for a year, you will pay roughly $1,100 in interest. The 2% cash back on your purchases might earn you $50 to $100. You lose money overall.
Be honest with yourself. If you have a history of carrying balances, choose a card with the lowest interest rate you can get, even if it has no rewards. If you always pay in full, choose based on rewards and bonuses, and ignore the interest rate entirely.
Compare rewards in the categories where you spend the most
Rewards cards come in three basic shapes: flat-rate cards that give the same percentage back on everything, category cards that give higher percentages in specific categories, and rotating cards that change which categories earn extra rewards each quarter.
A flat-rate card might give 1.5% cash back on all purchases. A category card might give 3% on groceries, 2% on gas, and 1% on everything else. A rotating card might give 5% on groceries one quarter and 5% on restaurants the next, with 1% on everything else.
Take your spending breakdown from the first section and calculate what you would earn with each card. If you spend $400 a month on groceries, $200 on gas, and $300 on everything else, a card with 3% on groceries and 2% on gas would earn you $144 a year on those categories alone, plus $36 on the rest — $180 total. A flat 1.5% card would earn you $108 a year. The difference is real money, but only if you actually spend in those categories.
Factor in annual fees and sign-up bonuses
Some cards charge an annual fee, usually $95 to $550. These cards almost always offer higher rewards or better perks to justify the cost. A card with a $95 annual fee and 3% back on groceries makes sense if you spend enough to earn more than $95 in rewards. A card with a $550 annual fee makes sense only if you spend thousands a month and value the travel perks or concierge services.
Sign-up bonuses are one-time rewards you earn for spending a certain amount in the first few months. A common offer is "earn 50,000 points after you spend $3,000 in the first three months." These bonuses can be worth $500 or more in cash value, but only if you would have spent that money anyway. Do not spend money you would not normally spend just to earn a bonus.
Calculate the true cost: annual fee minus the rewards you expect to earn in a year. If a card costs $95 per year and you earn $150 in rewards, your net gain is $55. If you earn only $60 in rewards, your net gain is minus $35 — you lose money.
Check for introductory rates and other terms
Some cards offer a 0% interest rate on purchases for a set period, usually 6 to 21 months. This is useful if you plan to make a large purchase and pay it off over several months. After the introductory period ends, the regular interest rate kicks in, so check what that rate is.
Other cards offer 0% on balance transfers, which means you can move debt from another card without paying interest for a period. This only helps if you have existing debt and plan to pay it down during the promotional period. Once the period ends, any remaining balance will be charged the regular interest rate.
Read the fine print on these offers. Some require you to pay the full balance before the period ends or you will be charged interest retroactively on the entire amount. Others charge a one-time fee to transfer a balance, usually 3% to 5% of the amount transferred.
Think about what happens after the first year
Sign-up bonuses and introductory rates are temporary. After the first year, you are left with the card's regular rewards, regular interest rate, and annual fee. Make sure the card is still worth keeping after the bonus period ends.
Some people use a strategy called "churning" — getting a card for the sign-up bonus, then switching to a different card the next year. This works if you are disciplined about paying off balances and tracking which cards you have opened. Most people are better off finding one or two cards they like and keeping them long-term.
If a card has an annual fee and you will not earn enough rewards to justify it after the first year, plan to close it or downgrade to a no-fee version of the same card. Call the issuer before the renewal date and ask what options you have.
Frequently Asked Questions
Does applying for a credit card hurt my credit score?
Yes, but only slightly and temporarily. When you apply, the card company does a "hard inquiry" which lowers your score by a few points. The impact fades over a few months. Opening a new account also lowers your average account age, which can temporarily lower your score. These effects are small compared to carrying high balances or missing payments.
What is the difference between cash back and points?
Cash back is straightforward: you earn a percentage of your spending as actual money. Points are a proprietary currency that the card issuer controls. Points are usually worth less than cash back unless you redeem them for travel, where they may be worth more. If you want simplicity, choose cash back. If you travel frequently and want to maximize value, points cards can be worth more.
Should I close my old credit cards when I get a new one?
Usually no. Closing a card lowers your average account age and reduces your total available credit, both of which can hurt your score. If a card has an annual fee you do not want to pay, call and ask to downgrade to a no-fee version instead of closing it. If you must close it, do it after you have had the new card for a few months.
Can I get a rewards card if I have fair credit?
Some rewards cards are available to people with fair credit (scores around 620 to 680), but the rewards are usually lower and the annual fees higher than cards for people with good credit. You may earn 1% cash back instead of 2%, or pay a $95 annual fee instead of getting a no-fee card. As your score improves, you can switch to better cards.
What if I cannot decide between two cards?
Calculate the dollar value you would earn with each card based on your actual spending, then subtract any annual fees. The card that leaves you with more money in your pocket is the right choice. If the difference is small, pick the one with the simpler rewards structure — you are more likely to actually use it.