What you need to know before opening a new credit card

Is your credit rating high enough?

Most cards have credit score requirements, among other criteria, so it’s important to determine what your score is and if it’s good enough for you to be approved.

But what exactly constitutes a good credit rating?

Ted Rossman, senior industry analyst at Bankrate.com, explains that a great credit rating is “generally defined [as] 740 or higher on the FICO scale, which ranges from 300 to 850.” The FICO score represents the likelihood of you paying off your credit card bill based on previous payments.

Although many credit cards have a FICO score threshold of 670, this is not a hard limit.

“The average FICO score is 716, so most people are in the right ballpark for most cards,” Rossman said.

If you want to boost your credit score, Rossman said the key is paying your credit card bills on time, keeping your low balance and prove that you can successfully manage various types of credit over the long term. And that can take time.

“A lot of this is a marathon, not a sprint,” he noted.

For those trying to improve a lower credit score or looking to build credit, Rossman suggests secured cards, which are backed by a security deposit and are often held in a linked bank account. It works as a guarantee if you fail to pay your monthly bill.

These cards also have strict limits and do not allow cardholders to spend more money than they deposited in advance. So if your security deposit was $500, your spending limit will be $500.

What rewards does it offer?

There are three main types of credit card rewards: cash back, points and miles.

Cash back rewards pay cardholders a percentage of what they spend on purchases. Accumulated cash can usually be redeemed in the form of a check or direct deposit, applied to future balances as statement credit, or sometimes used to make purchases.

Points and miles rewards cards offer cardholders the ability to redeem their rewards for travel and other products and services.

Whatever form of rewards you choose, you’ll want to make sure it helps you get the most out of your purchases.

Start by thinking about how you spend your money. While some cards offer more rewards for spending categories like travel and dining, others offer better benefits for grocery shopping and gas. Others will alternate which categories offer the highest rewards, or even let you choose.

Many people prefer cash back because it’s easier to navigate and doesn’t require tracking purchase categories, according to Rossman. He suggests finding a card that offers 2% cash back on every purchase.

If you’re willing to play around with different cards to get more rewards, Rossman recommends having a cashback card for general purchases, then layering other cards for more specific categories.

“Use something like [a general cash back card] as a floor, ensuring you never get less than 2% cash back on any given purchase, and prioritize categories where you spend a lot of money,” Rossman said.

Pay attention to fees

While many banks won’t charge you anything just for having a credit card, some rewards cards will charge an annual fee, typically ranging from $95 per year to $695.

“For the most part, the better the rewards, the higher the annual fee,” said David Lord, chief executive of Credit.com.

Although some of these fees may seem high, they can be worth it if you know you will use all the benefits offered by the card.

“These are often travel cards with premium benefits,” Rossman said. “The annual fee might be worth it if you want to make good use of the airport lounge, free checked bags or other perks, but not if you travel infrequently.”

Another common commission is the foreign transaction commission, which typically adds 3% to the purchase price of products and services purchased in other countries. If you travel internationally often, you’ll want to avoid cards that charge such fees.

Most cards will also charge a late payment fee.

“Up to $30 for the first offense and up to $41 for subsequent offenses within six billing cycles,” Rossman said.

Another important fee to consider is cash advance fees. But Rossman advises against using a credit card to get cash. “There are separate fees, and interest starts accruing immediately at a higher rate than normal purchases.”

How high are the interest rates?

“It doesn’t make sense to chase 1%, 2%, or even 5% cash back (or an equivalent amount of airline miles or hotel points) if you’re paying a high interest rate,” he said. Rossman.

But determining the interest rate may not be as simple as it seems. Cards often charge different rates on purchases versus balance transfers or cash advances. And most credit card issuers offer variable rates, which means they can change over time.

Many cards also offer a launch rate – some as low as 0% – for a certain period of time. But cardholders should be aware that the rate may skyrocket at the end of the period.

As long as you are diligent in redeeming the card before the introductory period expires, a 0% rate on purchases can prove to be a significant financial benefit. This is especially true for people who are looking to make a few big purchases — like a vacation or a wedding — early in the term, but need a bit more time to pay them off.

“You can divide what you owe by the number of months left and try to stick to it,” Rossman said. “I think that makes more sense than constantly making a series of purchases with the 0% card.”

All in all, when selecting this new plastic, there is no one-size-fits-all solution. Instead, it’s all about doing research and finding what works best for you.

“[The] the devil is in the details, go over the fine print,” Lord said.