7 Factors to Consider When Comparing Credit Cards
5 Min Read | Last updated: August 28, 2023
This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.
Learn what to consider when comparing credit cards, including rewards, fees, interest rates, and your financial needs to help you make an informed decision before applying.
At-A-Glance
- Comparing credit cards can feel overwhelming because there are so many of them, and they have a wide range of different characteristics.
- But a careful analysis of several factors, including credit card rewards, fees, interest rates – and your unique personal finance needs – can help you choose.
If you ever seriously try to compare credit cards, you might notice how much it’s like navigating the cereal aisle at the grocery store. The abundance of possibilities is alluring, but if you really try to make an informed, analytical choice, you could become a victim of “analysis paralysis.”
It doesn’t have to be that way. To help make your credit card comparison a little bit easier, here are seven key factors to consider.
1. Understand Your Financial Profile and Spending Habits
Before you start comparing credit cards, it’s best to understand your own financial profile. Your credit score and credit history play a big role in what type of credit card you qualify for. Having good to excellent credit can help you to qualify for the most generous rewards cards, though there are plenty of cards available for those simply looking to establish or build credit history, too.
It also helps to know your spending habits. Remember that a credit card isn’t a source of free money – you have to pay back every purchase, and any unpaid monthly balance will likely start to collect interest.
2. Recognize Why You Want a Credit Card
Whether you’re getting your first card or searching for a new one that best fits your current lifestyle, ask yourself why you want a credit card. Your answer will be the basis for determining which credit cards to compare and, ultimately, which one to choose. Here are a few reasons you might want a credit card and some matching card types:
- If you’re an avid traveler, If you’re an avid traveler, look into cards that offer hotel, airline, or general travel rewards.
- If you’re a small business owner, a cash back business credit card can help you pay for company expenses.
- If you’re just starting to build credit, consider a card with no annual fees.
- If you want to make a balance transfer, compare credit cards that allow balance transfers.
3. Compare Credit Card Rewards
One of the biggest benefits to having a credit card is the chance to earn rewards on eligible purchases. Some cards offer cash back, while others offer points or miles. Some cards offer more generous rewards in specific categories of spending, while others offer more general rewards.
Understanding how you plan to use your card will help you choose the best one for you. For example, hotel or airline credit cards might not make much sense if you rarely fly, and you probably wouldn’t want a gas credit card if you don’t own a car.
4. Compare Annual Fees
If you compare rewards points or cash back credit cards, you’ll usually find low or no annual fee credit cards typically offer fewer rewards and benefits when compared with their annual fee counterparts. However, this will vary depending on the card in question.
When comparing annual fees, it’s a good idea to ensure that the card’s rewards and benefits will make the fee worthwhile for you. If you’re an avid traveler with an airline card that gets you free checked bags, free airport lounge access, and priority boarding, the higher fee might be well worth it. But if you’re not going to use the card often or accrue rewards, take some time to consider whether the annual fee is worth the cost.
5. Compare Interest Rates
Credit cards can have a variety of different interest rates, also known as Annual Percentage Rates (APRs). APRs for purchases, balance transfers, and cash advances, for example, typically vary. When comparing different credit cards’ purchase APR, consider whether you plan to pay off your statement balance in full every month. If you’re able to pay the balance off, you can save on interest. However, if you end up making the minimum payment, you’ll pay more in interest if you have a card with a higher purchase APR.
If you think there’s a chance you might carry a revolving balance over time, making only the minimum monthly payment, then you’ll want the card with the lowest APR available – even generous rewards typically won’t compensate for the interest accrued over time. If you’re planning to make a large purchase and would like to pay it off over time, consider comparing 0% introductory APR credit cards.
6. Compare Additional Fees and Penalties
Along with APRs and annual fees, other common credit fees include balance transfers, cash advances, foreign transactions, late payments, returned payments, and others. Whether you’ll have extra fees depends on how you use your credit card. For example, if you don’t plan to use cash advances or make any balance transfers, you could consider a card that charges extra for those services. Or, if you plan to do a lot of international traveling, a no foreign transaction fee credit card might be the way to go.
7. Compare Extra Benefits
Some credit cards offer additional benefits like certain types of rental car insurance, airport lounge access, and roadside assistance, to name a few. But cards that offer these additional benefits will typically charge an annual fee.
When comparing a credit card’s extra benefits, consider your needs. Free airport lounge access might sound tempting, but it might not be worth the potential annual fee unless you spend a lot of time in airports.
Credit Card Application Tips
After you compare credit cards and identify a card that’s a good fit for your needs, you may want to consider submitting your application. Before you do, there are a few things that you’ll typically want to keep in mind:
- Check your credit score first: Most credit card companies have a list of requirements that you’ll need to meet. Knowing your credit score will help you see where you stand before applying.
- Consider a soft inquiry: Before applying, consider opting for a credit card that offers an initial soft inquiry. A soft inquiry doesn’t impact your credit score. It can, however, inform you whether you meet some or all of the approval criteria (depending on the card issuer) before you proceed with formal application. Keep in mind that a hard inquiry may occur once you accept the card.
- Avoid applying for multiple credit cards at the same time: Credit card applications will typically appear on your credit report. Applying for too many credit cards at once could negatively impact your credit and may be a red flag for potential lenders.1
FAQs on What Should You Consider When Comparing Credit Cards?
Why should you compare credit cards before applying?
Each credit card has its own unique features and benefits and comparing credit cards can help you to find the right card for your needs. It’ll also give you a chance to compare rewards, fees, and interest charges, and review the card terms and conditions.
How many credit cards should you have?
The optimal number of credit cards for you will depend on various factors, including your credit score and your financial situation. Having multiple credit cards could allow you to charge expenditures strategically so you can get the best rewards for the purchase. However, maintaining monthly payments and tracking your spending may become more difficult when you have multiple cards.
The Takeaway
Whether you’re getting your first credit card or looking for a new one, shopping around for credit cards can seem overwhelming. But carefully considering these seven key factors can help shape your thinking and make it much easier for you to compare credit cards.
1 “Can You Apply for Two Credit Cards at Once,” Experian
Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.
Related Articles
Comparing Annual vs. No Annual Fee Credit Cards
Using a no-annual-fee card with a low or 0% intro APR can help you save money, while annual fee cards can also offer savings in rewards like travel perks or cash back.
Comparing the Best Travel and Hotel Credit Cards
Should you get a general-purpose travel credit card or hotel credit card? The key difference comes when you need to redeem those rewards. Explore which is the best credit card for your next trip.
Types of Credit Cards: Understanding the Differences
Understand how different types of credit cards cater to specific needs, such as travel or cashback rewards.
The material made available for you on this website, Credit Intel, is for informational purposes only and intended for U.S. residents and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.
Shop All American Express Credit Cards
