Searching for the right credit card can be a complete minefield. We get it: Amid industry buzzwords and conflicting claims, it's hard to know which card suits your lifestyle and spending habits. But according to NerdWallet expert Kimberly Palmer, it's worth putting in the extra effort to find your perfect match.
"The biggest mistake people make is going with whatever card seems easiest," she tells MyDomaine. "For example, [choosing] the most recent offer letter they received or the card that's associated with their current bank instead of finding the card that will give them the biggest financial benefits." A recent J.D. Powers study found that a whopping one in five Americans are carrying the wrong card, which has fees or rewards not aligned with their actual purchase habits.
If it's been years since you reviewed your credit card, set aside 30 minutes to do a quick check. Here's exactly what you need to know to compare credit cards like a pro.
Step 1: Review Your Habits
"The first question to consider is your own spending because that will determine what type of card makes the most sense for you," Palmer explains. Take a look at your past credit card statements and review what you spend the most money on, which will help you choose the best rewards. "If you spend a lot on travel, then a travel rewards card could be most beneficial, but if you spend more on everyday items like gas and groceries, a cash-back card could make the most sense," she says.
It's also important to acknowledge how much of your debt you pay off each month. "If you carry a balance, then you probably want to look most closely at no-fee balance transfer cards with a 0% or low introductory APR so you can work toward paying off that debt." Finally, check your credit score. This will determine which cards you're eligible for, so it's important to do this before you even start comparing potential credit cards.
Step 2: Use an Online Comparison Tool
"You can compare the cards yourself, but it will take you much longer—hours to really do a good job—so save yourself that trouble," she says; an online tool will be your best friend here. "We crunch lots of numbers like sign-up bonuses and annual fees, and also look at other card benefits, such as purchase protection and access to airport lounges, so you can easily sort through the options and find the best card for you."
NerdWallet also has a handy personalization quiz that asks basic questions about your needs and spending habits, and then scans over 1200 cards to find the best fit. "We also organize the various options so it's easy to look through travel cards or cash-back cards, for example," she adds.
Step 3: Tally the Fees
To the uninitiated, choosing a no-fee credit card over one with annual costs seems like a no-brainer, but Palmer says it's not that simple. "Many cards with annual fees provide incredible value—value that far exceeds the annual fee you are paying," she says.
The question to ask yourself is whether you'll actually take advantage of the benefits. "If you take advantage of the benefits that come with the card, whether it's access to airline lounges, free hotel nights, or free Uber rides, you could be getting far more out of the card than you are paying in that annual fee," she explains. "Even a cash-back card with a fee could give you much more in cash back than you are paying in the fee—you have to crunch the numbers to see if it's worth it to you."
Step 4: Weigh the Rewards
Now for the best part: the rewards. Choosing between the plethora of rewards can be fun if you're actively involved in your finances, but if the process leaves you feeling overwhelmed, consider Palmer's advice. "Our analysis found that for most Americans, cash-back cards are better than cards with travel points. That is largely because you can't beat the flexibility of cash," she explains. "If you end up never going on that dream vacation, you still have value in the form of cash back that you can spend on whatever you want." If you're a frequent flier, though, she notes a travel card might be suited to you.
The last step—and the one that's most frequently skipped—is to ensure your card of choice is a good process for redeeming points. "It's important to look for a card that makes it simple to redeem points so they don't end up going to waste—always check how point redemption works before taking out a new card," she says.
Found an awesome credit card and want to spread the word? Share your reviews in the comments.