First Things First: Check Your Credit
Before you start picking a new credit card, be sure to check your credit report.
It’s a fast process that can be completed through your current credit card issuer or any of the three major credit bureaus (Experian, Equifax, and TransUnion). Some companies offer this benefit at no-cost.
To get started, simply click here to visit annualcreditreport.com and request your free credit check. As you’ll see, federal law entitles you to a free credit report once every 12 months from each of the three major bureaus.
You can dig deeper to find your FICO® score estimate by answering some questions through FICO® score estimator for free.
The base FICO® scores are divided into five groups across their range of 300 to 850:
- “Exceptional”: 800 - 850
- “Very Good”: 740 - 799
- “Good”: 670 - 739
- “Fair”: 580 - 669
- “Poor”: 300 - 579
Once you receive your report, carefully review it to ensure there aren’t any glaring errors. If there are, don’t worry!
Over 34% of Americans encounter at least one error on their credit report, and they can quickly be disputed. Just use this sample letter provided by the Federal Trade Commission to expedite the process.
Now that you know your credit score, you’ll have a much clearer picture of what kind of card to pursue.
Types of Credit Cards
Generally speaking, there are three categories of credit cards:
- Cards designed to help you earn rewards (like air travel miles or cash back on purchases)
- Cards that help you save money on interest (to help reduce costs when financing big purchases)
- Cards that help you improve or establish credit (if your credit score is limited or low)
While all three options have merit, be sure to pick the card that can help you achieve your goals.
Though the average American may have nearly four credit cards, try to focus your attention on getting the right one.
For example, if you already have a solid credit score and want to rack up extra miles for an upcoming vacation, you may want to go with a rewards card.
Or, if you already have a solid credit score and you’re about to finance a major purchase (or infrequently revolve a balance on your credit card), a low APR (annual percentage rate) card may be your best bet.
Conversely, if you have less-than-perfect credit and are looking to start (or restart!) your credit journey, you may want to pick a card that can help you get on track to your financial goals.
How to Spot the Right Credit Building Card
A great credit building card doesn’t need to be your “forever” card. It simply needs to help you establish a better credit score so you can accomplish the things you value most.
To that end, there are three fundamental questions to consider when comparing credit building cards:
Does this card actually help me build credit? While most credit cards empower you to borrow, they don’t all help you actually build credit.
As you’re investigating your options, make sure you choose a card that reports your monthly payments to each of the three major credit bureaus. After all, building credit requires accountability, and you deserve to be rewarded for your discipline.
What are the costs and fees associated with the card? Great credit building cards should have simple and straightforward fees.
And since you’re not paying for luxurious rewards, any origination and annual fees should be in service of your financial freedom.
In other words, you shouldn’t have to pay an arm and a leg to build better credit.
Can I graduate to a rewards card in the future? Credit building cards are a means to an end.
Once your credit is built (or rebuilt), you’ll be in a position to upgrade to a card with more competitive terms (and incentivizing rewards).
Keep Your Eye on the Credit Target
Learning about credit could help you gain helpful information. BUT working on your credit could help you gain strong credit, earn useful rewards, or even buy a house. Credit is a way of life, make yours a healthy one.