How to Find the Best Credit Cards Based on Your Credit Score
Credit cards offer a convenient way to pay for goods and services, and higher credit limits allow cardholders to pay for emergencies on short notice if necessary. Getting approved can be difficult if you have poor credit, but with good credit you should be able to find cards that offer low rates and valuable perks.
Once you know what your credit score is, you can shop for the type of card that best fulfills your needs. If you're trying to rebuild your credit, you'll want to find a bank that will approve you for a card so you can start rebuilding your credit. If you have good credit, you'll want to find the lowest interest rates possible and possibly other perks such as points or miles.
Understanding Your Credit Score
Credit scores range from 300-850 and help lenders assess levels of risk associated with borrowers. Every lender is different, and credit scores are not the only thing they consider, but anything 800 or higher is considered excellent, 740-799 is considered good, and 670-739 is considered average. Borrowers with scores below 700 are more likely to be denied credit, and the lower the score, the higher interest rate is likely to be. Scores in the high 500s to mid-600s might still be approved for some credit cards with low limits and very high interest rates.
However, once scores go south of 600, approval for an unsecured credit card is unlikely.
Two formulas—FICO and VantageScore 3.0—are used to calculate, but they both emphasize the same things. Payment history and credit utilization are most important, followed by the average age of your credit accounts. Also considered but less important are the number of inquiries into your credit and the mix of different types of credit. Credit utilization is the key factor to watch with a credit card.
Help improve your credit by always paying your credit card bill on time and never carry a balance greater than 30% of your spending limit. Keeping at least 70% of your available credit unused shows that you can handle it responsibly and it could boost your credit score.
The three major credit bureaus—Equifax, Experian, and TransUnion—each provide one free credit per year, but scores are commonly provided as a free source by lending institutions. The bank that provides your bank account or your credit card issuer may offer this service. Credit tracking services such as CreditKarma, Mint, and others also will provide free scores if you sign up for an account and provide your pertinent information.
Finding the Right Match
Whether you have good credit, bad credit, or are somewhere in the middle, Financial Globe's Score Match provides a list of credit cards based on your credit score. The site also indicates the approval rate of the credit card, giving you a better idea of whether your application will be approved.
Some credit card issuers will do what is called a soft pull on your credit report to determine if you are likely to qualify for any of their cards. This also is known as being prequalified and it does not impact your credit score, unlike a full credit inquiry. This is helpful when trying to determine if you are likely to qualify for a card or not. If you do meet the standards for prequalification, you can be certain your application would be rejected.
However, prequalification is no guarantee that you'll be approved. Once you submit an application, the credit card issuer will do a much more thorough review of your credit history and income to determine if you meet their qualifications. If you are denied, you will receive a letter in the mail within a few days explaining the reason your application was turned down.
Secured Cards and Improving Credit
If your credit is too poor to get approved for a standard credit card, a secured credit card might be worth trying. With this type of account, you'll be required to pay a deposit to secure your credit limit. After several months of responsible use, you may be able to convert your secured credit card to an unsecured credit card or your newfound credit status may be in a better position to help you qualify for another unsecured credit card.
Once you get an unsecured card, you'll probably have a low limit. The best way to help improve your credit score is to use the card for only one or two minor purchases each month, then pay off the bill in full. After several months of using the card and paying it off, you should see an improvement in your credit score.
If your credit rating is in the mid- to high-700s or north of 800, there are many cards out there with low interest rates, cash back, points, or other perks for cardholders. The perks available are numerous and varied. Some cards are specifically tied to airline miles or rewards for staying at specific hotels, others offer cash back, and some have points systems that allow you to use your points toward specific goods or services. For example, Chase has a card that offers double points for purchases related to travel, while Discover has a card that offers 5% cash back on certain purchases.
Most popular credit card providers have multiple variations of rewards systems. The best approach is to analyze what types of purchases you most commonly put on a credit card, then search for rewards programs that relate to those purchases. If you dine out frequently, search for cards with bonus points for eating in restaurants. If you drive a lot, search for cards with bonus points for use at gas stations. Doing this is a great way to take advantage of your good credit and get a little discount on some of your most common expenses.