Choosing the best credit card today is hard because there are too many.
Banks offer a dozen of credit cards to open anytime you want if you have a good credit score, good credit report, and a good income.
Chase has more than 30 credit cards to choose from right now, while Bank of America has more than 20.
In addition, American Express, Citi Bank, and Well Fargo have many types of credit cards too.
It becomes impossible to pick a credit card to maximize your finance because there is simply just too much information.
You may end up opening too many credit cards and become addicted to using them.
To pick the best credit card to maximize your finance, we compare it with a debit card to understand the basics, the benefits, and the characteristics of a credit card.
1. Credit Card Basics Before choose the best credit card
When you use a credit card, you are actually borrowing money from a bank.
For example, when you go to Costco to buy food with Chase Freedom Unlimited Credit Card, you pay Costco the money you borrow from the bank in real-time when Costco accepts your credit card for payment.
When you apply for a credit card by filling out the secure application online or going to the bank, you agree to pay the money back to the bank.
By applying for a credit card, you agree to repay the money you borrow, plus any interest or finance charges that accrue on the amount you owe, until you’ve paid it off completely.
Credit cards, in a nutshell, are a type of loan.
In comparison, a debit card is a way to get instant access to your money.
Most banks allow you to use a debit card or check card to gain instant access to the funds in your checking account.
When you use one, your bank deducts the funds from your account on the same day or soon after.
You don’t have to carry cash or checks when you use a debit card, and you don’t have to pay interest or finance charges because that is your money. You still have to pay a maintenance fee of $12 per month if your checking account has a balance below $3,000.
2. Should You Choose Credit Card or Debit Card?
It depends on your personal references.
2.1 Surcharge, merchant, or foreign transaction fees: pick credit card does not charge fees
Some small businesses, online retailers, and restaurants will charge a surcharge if you use your credit card to make a purchase, but debit cards are exempt from such charges.
As much as I enjoy credit card rewards, I wouldn’t want to pay a 3 percent fee just to get 1% or 2% cashback.
If you have a credit card that charges foreign transaction fees, you may want to consider using a debit card rather than a credit card when making an international purchase.
Check to see which fee is lower before you travel abroad.
2.2 Quick Access to Cash: pick a debit card
If you need cash, you can use both a debit and a credit card to withdraw funds from ATMs.
When you use your credit card to withdraw cash, it’s considered a cash advance, and you’re charged interest on the transaction right away.
When you use your debit card to withdraw cash from an in-network ATM, the transaction is free.
If you’re in a hurry and use an out-of-network ATM, you’ll almost certainly be charged a transaction fee by both your bank and the ATM provider.
This can be costly, but it is not nearly as costly as when you use a credit card to withdraw cash. Rule of thumb: never use a credit card to withdraw cash.
2.3 Avoid Debt: pick a debit card
If you’re having trouble paying off your credit card, using a debit card may be a better way to control your spending.
If you only make the minimum payment on your credit card accounts each month, interest continues to accumulate on both revolving balances and new purchases.
Minimum credit card payments can add up over time and cost you a lot of money in interest.
2.4 Security, avoid fraud
If someone obtains your debit card information and fraudulently uses it, they are stealing real money from a real account.
Whenever anyone tries to steal your credit card information, the money is not taken directly out of your account.
Rather, it appears as a charge on your account, which your credit card company can investigate and waive if they discover it was not made by you.
Your money is still secure in your bank account while all of this is going on.
Last year, my debit card information was stolen when I used it at the gasoline station. They keep charging me $19.99 per month for some Internet Services I did not use.
When I found out, I have to report it to the bank, replace the debit card, and submit the form to ask for the money back.
I also use a credit card to pay for the restaurant last month, and when I received an alert that the restaurant charge me twice for that dinner.
I simply dispute the transaction in 10 seconds by using a mobile banking app.
If you don’t feel confident, just trust your instincts and use a credit card instead of a debit card. When in doubt, using credit is actually safer and less complicated in most cases.
A fraudster can spend your entire checking account balance in minutes, resulting in bounced checks, overdraft charges, and a big headache!
Credit cards also provide other benefits, such as assisting consumers in improving their credit scores.
This is accomplished by paying off your balance in full each month, which debit cards do not allow.
Whenever possible, I use a credit card to build wealth by following my practical guide: BORI.
3. Open your first credit cards
When you open your first credit card, it is important to focus on building credit rather than earning rewards or spending money that you can not afford to pay back.
3.1 Build Credit Score With No Annual Fee Chase Student Credit Card
On a monthly basis, credit cards typically report transaction history to at least one of the three major national credit reporting corporates (Equifax, Experian, and TransUnion).
Their report on your responsible credit card usage contributes to the improvement of your credit rating, also known as your credit score.
If your credit score is good (above 720), the more likely you are to receive the best terms: low-interest rates, low fees, and so on, on all types of credit, including credit cards, car loans, business loans, and mortgages.
This could easily translate into tens of thousands of dollars saved. In the long term, it actually helps you achieve your goal faster and easier.
Great credit can also save you money on insurance premiums every year, and it can even assist you to land your dream career.
The mission is to find a card that works for you, such as one that offers low-interest rates, incentives, and services.
There’s no point in allowing a bank to make a lot of money off of you by charging you annual fees, late fees, high-interest rates, and other fees.
Chase Student Credit card is good for your first credit card, with no annual fee, and a $50 sign-up bonus after the first purchase made within the first 3 months of account opening.
You can earn 1% cash back on all other purchases, and $20 cash every year for up to 5 years.
In a nutshell, you will earn money while building your credit score to create your wealth in the future.
3.2 Understand the terms and conditions of Credit Card
Most people only spend a minute reading the terms and conditions of Credit Card.
When you apply for a credit card, the company assumes you accept the terms and conditions, regardless of whether you truly understand them.
The fine print is usually skimmed over by most people.
Let’s be honest, isn’t it when the words start sounding too complicated and the print becomes too tiny that we lose interest and convince ourselves that we do not read?
Actually, it is true that you only need to understand:
- Annual fee if applicable
- The annual percentage rate for purchases (APR): The rate will be displayed while the actual rate will be determined by the lender’s assessment of your creditworthiness.
- Balance Transfers: bank can give you an option to use another credit card to pay off a credit card balance to get 0% APR for 6 months.
Let’s say you have $6,000 need to pay in full for your Costco Citi Credit Card next month but you need to fix your broken car right now and do not have enough money. You have two options:
- You can pay the minimum amount and interest to Costco Citi Credit Card.
- Or you can open a new Chase Freedom Unlimited Credit Card to have 0% APR for 12 months, or Chase Flex for 18 months and request a balance transfer by login Chase Online Banking Account.
You still have to pay the minimum amount to Chase Credit Card but no interest for 12 months which can save you $500 per year or more until you can pay in full.
The bank also charges 3% to 5% of the amount of each transfer with a minimum fee of $5.
I use the balance transfer of Chase Credit many times when I see good deals which are 0% APR for 12 months, and 3% of the transfer amount when I need cash for my business.
- Cash Advances: the rate you must pay when you use your credit card to get cash from ATM, convenience check, or in-person at a branch.
Credit card cash advances allow you to use your credit card to get cash when you really need it.
It’s critical to understand the expenses of a cash advance and how credit card cash advances work before you use one.
Cash advances are a costly way to obtain funds and I never use them to access the cash unless it’s a real emergency.
Cash advances come with the following fees in addition to the actual advance, which you must repay:
1. Fees: Cash advance fees can be significant, with a typical fee of 5% of the cash advance. If you obtain a cash advance through an ATM, you will most likely be charged several dollars in ATM fees.
Chase Credit Card usually charges either $10 or 5% of the amount of each transaction, whichever is greater.
2. Interest: You will typically pay a higher interest rate on advances than you would on purchases made with your card.
Moreover, unlike purchases, which allow for a grace period before interest begins to accrue, cash advance interest begins to accrue the moment the advance is granted.
- Penalty Rate: when you make a late payment or forget to pay, you have the penalty
- Grace Period for purchases
- Interest
- Transaction fees
