There are a lot of perks that come with having a credit card, from the convenience of being able to pay for a purchase when you don't have cash to the chance to earn rewards on every dollar you spend.
Having a credit card can also help you build your credit history, which is important if you want to one day apply for a mortgage or personal loan.
While having a credit card can help you improve your credit score, it can also hurt it. It's essential to know how to use a credit card responsibly, spending within your means and paying off your balance in full and on time every month.
Credit cards can come with high interest rates compared to other financial products like personal loans or student loans. And unlike installment loans, which have predictable monthly payments, you must keep track of how much you owe on your card at any given time.
In this guide, we'll review everything you need to know to use your credit card with confidence, including how to get a credit card and how to use it responsibly.
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These rectangular pieces of plastic or metal can be used to pay for new purchases by swiping, tapping or inserting your card into a card reader at checkout, or entering your credit card number when shopping online.
Some credit cards also come with rewards and promotional offers including introductory 0% financing and welcome bonuses for signing up and meeting certain minimum spend requirements. The Wells Fargo Cash Wise Visa® card, for example, rewards new cardmembers with a $150 cash rewards bonus after you spend $500 in the first three months and offers no interest for the first 15 months on balance transfers and purchases (then 14.49% to 24.99% variable APR).
When you open a credit card, you receive a credit limit that can range from a couple hundred to thousands of dollars. You'll be able to spend up to that limit.
Most financial institutions allow you to track your credit card spending by logging into your online account or mobile app. When you make a purchase with your card, it will show up as pending on your account and post within a few days. Once the transaction is posted to your account, your total balance will increase.
Every month, you will receive a bill from your card issuer including of all the posted purchases you made during your billing cycle. In order to keep your account in good standing, you'll need to pay at least the minimum payment by your due date (which is the same date every month).
Most card issuers offer a grace period, which lets you to pay off your balance interest free within a minimum of 21 days from the end of a billing cycle. Any balance remaining after the grace period will incur interest. If you don't pay at least the minimum, you could also face late fees.
We recommend always paying on time and in full to avoid interest and fees. You'll be charged interest on any amount you don't pay after your grace period, and it can cost you hundreds of dollars over time.
There are thousands of credit cards available to consumers, which can make it hard to settle on just one. You might want to have a few credit cards to meet your different spending needs. Cards with 0% APR are helpful when financing a big purchase and rewards cards offer you the opportunity to earn points or cash back on everything you buy.
While there are lots of cards to choose from, they generally fall into four categories (and sometimes these categories overlap):
Rewards cards, which include cash-back credit cards, are one of the most popular types of credit cards because you can earn cash back, points or miles on all your purchases. You'll typically earn at least 1% or 1X back on everything you buy, and the best cards offer three to four times that on a variety of purchases from food delivery and groceries to gas and travel. The American Express® Gold Card tops our list for best rewards card, earning a competitive 4X points per dollar spent at restaurants worldwide and 4X points at U.S. supermarkets (on up to $25,000 per year in purchases, then 1X).
A secured credit card is a great choice for anyone with a low credit score, whether you're just opening a credit card for the first time or rebuilding your credit history. These cards work like an unsecured card but require you to make a deposit (often around $200) in order to receive a line of credit. With some cards, such as the Capital One® Secured Mastercard®, some cardholders can open a card with only a $49 or $99 deposit.
Some credit cards also offer interest-free financing periods of a year or more for new purchases and balance transfers. The best 0% APR cards offer 15-,18- and 20-month long 0% APR periods. For example, the U.S. Bank Visa® Platinum Card offers 0% for the first 20 billing cycles on balance transfers and purchases, then a 13.99% to 23.99% variable APR applies.
Business owners and anyone who's self-employed can benefit from opening a business card with rewards geared toward common business expenses, such as shipping and travel, as well as intro 0% APR periods. Plus, many of these cards also allow you to open employee cards, which can help you streamline expenses. If you're looking to earn a competitive cash-back rate on all spending, the Capital One® Spark® Cash for Business offers 2% cash back on every purchase. It also comes with Capital One business benefits, which includes account management tools, such as the ability to download purchase records to Quicken®, QuickBooks® and Excel®.
Before you apply for a credit card, you need to determine why you need one. To make the decision easier, answer the following questions:
If you're just beginning your credit journey, or looking to repair poor credit, it can be a little more difficult to find a card that fits your needs that you'll also qualify for. Check out secured cards or cards for building or rebuilding credit. If you have no credit history, a great choice is the Petal® 2 "Cash Back, No Fees" Visa® Credit Card, which doesn't include many common credit card fees.
A rewards credit card is a great way to earn cash back, points or miles on every purchase you make. You can maximize rewards by considering cards that offer bonus rewards in specific categories, such as gas, groceries, restaurants, entertainment and travel. If you rather have a simple rewards program, consider a flat-rate cash-back card, such as the Citi® Double Cash Card.
Carrying a balance on a high-interest credit card can be costly. You can transfer debt to a balance transfer credit card offering no interest for up to 18 months, such as the Citi Simplicity® Card (after 14.74% to 24.74% variable APR).
Some credit cards charge no interest on new purchases for over a year. The Chase Freedom Unlimited® offers no interest for the first 15 months from account opening (after 14.99% to 23.74% variable APR).
Some credit cards charge around a 3% fee on purchases made outside the U.S. If you regularly travel abroad, a credit card with no foreign transaction fees is essential. Also, some cards waive Global Entry or TSA PreCheck application fees. The Capital One® Venture® Rewards Credit Card offers cardholders both perks.
Opening a new credit card may seem as simple as applying, but there are a few more factors to consider to ensure you get the best card for your needs. When you're ready to open a card, take the following steps before you submit an application:
Many card issuers are transparent about the credit score requirements needed to qualify for certain cards. It's important to know your credit score so you know which cards you have the best chances of qualifying for.
When you're ready to shop around for offers, compare several credit cards so you know what's available. You can start by checking out CNBC Select's roundup of the best credit cards, which includes our top cards for a variety of categories, including balance transfers, no annual fee, travel and college students.
We also have side-by-side comparisons of popular credit cards:
Compare the rewards, fees, perks and credit requirements to see which card is best for your needs.
When you've which credit card you want, make sure you read the fine print before applying. It's important you review the details specific to the card you want to apply for.
Make sure you understand all the terms and conditions before submitting an application. Review the annual fee and interest rates for purchases, balance transfers, cash advances and penalties. Plus, be aware of any fees charged for foreign transactions and late payments.
Most major credit card issuers allow you to submit preapproval forms on their websites. These forms require your name, address and the last four digits of your social security number. With this information, the issuer will perform a soft inquiry of your credit history and check if you are a good candidate for the card.
Preapproval, or prequalification, won't have any impact on your credit score. Once you formally apply and the issuer does a hard inquiry, you'll see a small ding on your report (usually within five points). Prequalification is a way to limit those hard inquiries, or hard pulls, so you're only applying for cards you're likely to get approved for.
Even if you've prequalified for a credit card, you're not guaranteed approval when you submit your official application.
Here are some issuers that allow you to check if you prequalify:
When you submit a prequalification form, you may see that you're a candidate for several cards from that issuer. For instance, your results could say you have high approval odds for the Blue Cash Preferred® Card from American Express and the American Express® Gold Card.
Once you see your options, you can choose which card to apply for based on your own personal spending needs and preferences.
Once you've settled on the best credit card for your needs, you can submit an application. The quickest way to do this is online (whether it's on a laptop or via a mobile device). You also have the option to call, go in-person to a bank or send in a paper application.
The application process is similar between issuers, and you'll typically be required to provide your name, address, date of birth, social security number, annual income and employment status.
After you submit an application, you can receive a decision in as little as 60 seconds, but it may take longer. If you're instantly approved, expect to receive your card within the next two weeks. Some card issuers, such as American Express, may provide an instant card number that you can use for online transactions right away.
Earning rewards is one of the biggest perks of using a credit card, but it can also be confusing to navigate the different offers. Credit cards typically provide one of three reward structures: cash back, points or miles.
Each type of rewards program works a bit differently and often comes with its own quirks. Card issuers frequently market credit cards with generous welcome bonuses or introductory financing periods, but there are other rewards and perks you may want to take advantage of, especially if you're paying a high annual fee.
Here are the various kinds of rewards, perks and bonuses:
Cash-back cards offer cardholders a percentage of their spending back, and there are essentially three types: 1) flat-rate, 2) bonus categories and 3) rotating categories.
Flat-rate cash-back cards offer the same amount of cash back on every purchase, which is good for consumers looking for a simple rewards program that requires minimal effort. For example, with the Citi® Double Cash Card, one of our top picks for cash-back credit cards, you earn 2% on eligible purchases (1% when you buy and 1% when you pay your bill). A $100 purchase effectively earns you $2 cash back.
Many cash-back cards offer bonus cash back in certain categories, such as grocery stores, travel, gas stations and entertainment. Sometimes, cash back in the bonus categories is limited to a certain amount of spending each year, but it can also be unlimited.
The Blue Cash Preferred® Card from American Express is a bonus category cash-back card. It offers strong rewards rates for spending on groceries and streaming entertainment: You can earn 6% cash back at U.S. supermarkets on up to $6,000 per year in purchases (then 1%), 6% cash back on select U.S. streaming subscriptions, 3% cash back at U.S. gas stations, 3% cash back on transit including taxis/rideshare, parking, tolls, trains and buses and 1% cash back on other purchases.
Other cash-back cards offer 5% cash back in select categories that rotate throughout the year (typically changing each quarter). Common categories include restaurants, gas stations and grocery stores. These cards are popular among consumers looking to maximize rewards.
The Chase Freedom®, for example, offers 5% cash back in rotating categories on up to $1,500 in combined purchases after you activate the bonus every quarter. After you reach the limit, it's 1% on all purchases.
Cash-back cards are the most straightforward type of rewards card and don't require a ton of effort to collect and redeem your rewards.
Instead of giving cardholders a percentage of their spending back in cash back, some rewards cards offer one point or more for each dollar spent. For example, the Chase Sapphire Preferred® offers Ultimate Rewards points, whereas the American Express® Gold Card offers Membership Rewards® points.
These cards are very similar to cash-back cards in that you can earn more rewards in certain bonus categories. The Chase Sapphire Reserve®, for example, offers 3X points on dining and travel (immediately after earning your $300 travel credit) and 1X points on all other purchases.
Points cards give cardholders more redemption options than cash-back cards, but you may have to put in some effort to find the best deals.
For instance, points earned with the Chase Sapphire Preferred® Card are worth 25% more when redeemed for travel through the Chase Ultimate Rewards® portal, so 80,000 points would be worth $1,000. However, if you redeem for gift cards, statement credits or other options, the value of a point varies. You have to crunch the numbers when you're ready to redeem to make sure you're optimizing your rewards.
Another type of reward offered by credit cards is airline miles. These types of cards can be broken down into two categories: co-branded airline cards and travel rewards cards.
Co-branded airline cards, like the Delta SkyMiles® Blue American Express Card, offer miles as part of the brand's unique membership rewards program. You can use your Delta SkyMiles card anywhere Amex credit cards are accepted, but there are some limitations on how you can cash in your miles: Use your rewards for Delta-related purchases, such as plane tickets or in-flight purchases and upgrades, or put them toward exclusive hotels and experiences curated by Delta Vacations and official travel partners.
Some top-notch travel rewards cards also offer rewards in the form of miles, but they tend to offer a bit more flexibility. For example, miles earned with the Capital One® Venture® Rewards Credit Card are each worth one cent when redeemed for statement credits to cover nearly every kind of travel purchase, and there's also the option to transfer miles to other airline loyalty programs. You can also redeem your miles for gift cards, Amazon purchases, merchandise and statement credits, but you typically won't get the same 1:1 redemption rate.
Many credit cards offer a welcome bonus giving new cardholders the opportunity to earn extra rewards, such as cash back, points or miles. To earn the bonus, you usually have to reach a minimum spending requirement within the first few months of opening your account. The threshold varies, but it can be anywhere from $500 to $5,000.
Cash-back cards usually have the lowest minimum spend with the best return rates, while travel rewards cards typically offer larger bonuses but have much higher spending limits requirements. Then there are the few cards, like the Amazon Prime Rewards Visa Signature Card, which automatically gives you a welcome bonus of a $100 Amazon.com gift card upon account approval — no spending required.
Many card issuers and networks also provide access to exclusive dining and entertainment experiences, from festivals and workshops to intimate dinners. To take advantage of these benefits, you simply need to be a cardholder.
Below are just some of the dining experiences available to you depending on what kind of card you have:
Your credit card probably has other perks depending on the card network it's part of. Both Visa and Mastercard offer tiered benefits that can help you out in a pinch. These perks vary between card issuers and card network, so be sure to check your terms and agreements or call customer service to learn exactly what comes with your card.
Extra credit card perks include (but are not limited to):
There are dozens of credit card terms that are helpful to know so you can understand fully how your credit card works. Here are 16 definitions to get your started:
While credit cards are one of the safest forms of payment, it's also easy to fall victim to credit card fraud. There are easy steps you can take to stay vigilant to make sure your card isn't stolen, and as well as what to do if your card is compromised.
The easiest way to protect your credit card is to regularly check your account balance and transactions. Most issuers allow you to turn on notification so you can be alerted by text or email anytime someone swipes your card, makes a purchase online, or spends over a certain amount.
When shopping online, you may be tempted to click on social media ads on Instagram or Facebook, but you should do so sparingly. Ads boasting limited-time offers or large discounts may not always be from a reliable site. Before clicking on any ad — whether it's via your smartphone or laptop — you should verify the source.
Another way to prevent credit card fraud from phishing scams is by using a virtual card number for online shopping. Right now, there are only two card issuers that offer virtual card numbers: Capital One and Citi.
Using Eno®, Capital One's intelligent assistant portal, you can create unique virtual card numbers that are linked to your eligible Capital One credit cards. Likewise, Citi allows select cardmembers to create a different virtual number for every website they shop.
For instance, if you used a virtual number to shop with your Capital One® Venture® card, you'd enter a decoy number that links back to your credit card account. This way, phishers and other fraudsters can't access your real card number. And in case someone does manage to steal your virtual number, you can simply get a new one without having to replace your physical card.
There are five steps you should immediately take if you think your credit card has been stolen:
Under the Fair Credit Billing Act (FCBA), you can only be held liable for up to a maximum of $50 in the event of fraudulent charges on your credit card account, as long as you report it within 60 days. However, a number of major issuers, including American Express and Chase, guarantee zero liability with the caveat that you have to act quickly when something's not right.
Reasonable protective measures include:
Credit monitoring services can provide you with early notice of potential fraud on your credit report, so you can take steps to protect your personal information. While these services can't actually prevent identity theft, they can keep you informed so you can take action if you notice something is wrong.
Credit monitoring services flag new activity, including:
When you sign up for credit monitoring, you'll receive alerts and resources to help you identify and protect against possible theft, but these services can't actually guarantee fraud prevention. At best, they keep you instantly informed so you can take action as you notice something is off.
IdentityForce® tops our list of best credit monitoring services. Both IdentityForce® UltraSecure and UltraSecure+Credit offer the most extensive security features that monitor your information on a variety of sites and services, including the dark web, court records and even social media. You receive alerts for potential fraud on your bank, credit card and investment accounts, as well as the use of your medical ID, social security number and address.
Simply opening a credit card doesn't instantly improve your credit score — you actually have to use it. But until you feel confident in balancing all of your financial obligations, start small by using your credit card conservatively and checking your credit card statement regularly so you can track your spending.
If you're using your credit card for everyday spending, try to charge no more than 10% to 30% of your credit limit on your card at one time. For instance, if your card has a $500 limit, try not to spend more than $150 each month. This will keep your debt-to-credit ratio low (the second-most factor in determining your credit score) and helps you get in the habit of only spending what you can afford to pay off each month.
Most important: Pay your bills on time. Making consistent, timely payments has the biggest impact on your score. Lenders are more willing to give you credit when they see a long history of on-time payments on your credit report. When you open your first credit card, it's really important to start out practicing good financial habits: spending within your means and paying your bill on time and in full so that you never get dinged with over-the-limit fees or have to pay interest on the balance.
When deciding what you should charge on your credit card, consider treating your credit card like you would cash. Make it a habit to check your balance regularly, just as you would a debit card, so you avoid overspending. While some people like to use their credit cards for everyday purchases, others like to use it more sparingly. However you decide to use it, try to avoid putting these five charges on your credit card:
Even though credit cards are convenient, you shouldn't charge your monthly rent or mortgage payments because the processing fees are typically around 2% to 3%. Even with a good cash-back card, you likely won't earn enough rewards to offset the cost of the processing fees.
It might be tempting to charge a large purchase to your credit card, especially if you're looking to earn a big sign-up bonus. But you should never take on debt that you don't have a clear plan to pay off. A rewards bonus is often a good way to earn a lot of points, but it's not worth it if you're paying a high interest rate on the debt.
When a large purchase lingers of your credit card balance, you'll not only be hit with interest, but you'll also wipe out your available credit limit. Your credit utilization rate is a very important factor in determining your credit score, and if one or more of your cards is maxed out, you'll likely see a dip in your score.
If you do need to make a large purchase you can't afford to pay off right away, consider opening a 0% interest credit card. Make sure you create a plan to pay off the balance within the introductory period, so you're not hit with high interest charges later.
You can pay taxes with a credit card, but in most cases you probably shouldn't. Unlike using a bank account transfer, credit card payments aren't free. You'll wind up incurring a fee that's a percentage of your tax payment.
This fee will vary by the payment processor, but they can range from 1.87% to 3.93%.
Charging unexpected medical debt on a credit card may seem like a quick fix, but it can cost you more if you're unable to pay off the full amount right away.
Many doctor's offices and hospitals will work with you to set up a payment plan, if you can't afford your bill.
It's also important to have an emergency savings account, to help you cover unexpected expenses. Financial experts recommend setting aside money in a high-yield savings account. You only need to save $20 per week to stash away $1,000 in a year.
It's not always the big purchases that can set you back, but the seemingly insignificant ones as well. While it can be convenient to charge everyday purchases to your credit card (not to mention a great way to add rewards points), it's really important to make sure you're only buying what you can afford to pay off.
A $50 dinner might not seem like a big deal, but these kinds of small purchases can add up quick and if you can't afford to pay them off, you'll end up paying more in the long run. For example, a balance of $1,400 would take 25 months, or over two years, to pay it off with a monthly payment of $70. And depending on your APR, you could easily spend over $300 on interest. No doubt there's better ways you could be spending that money.
Using a credit card is very easy, but you need to establish good financial habits as soon as you open your first card. Always strive to spend within your means and pay your balance off each month on time and in full.
The benefit of having a credit card are plentiful: It offers more fraud protection than debit cards, gives you the opportunity to earn rewards and take advantage of special cardmember perks, and some cards even offer special financing programs so you can pay for big purchases over time.
And of course, credit cards help you establish a credit score so you can qualify for the best loan and credit products at the best interest rates.
Simply put, credit cards can be both convenient and beneficial when used responsibly. It's important to familiarize yourself with how credit cards work so that you can stay on top of your spending and feel confident in your ability to manage your finances.
To determine which credit cards offer the best value, CNBC Select analyzed 234 of the most popular credit cards available in the U.S. We compared each card on a range of features, including rewards, welcome bonus, introductory and standard APR, balance transfer fee and foreign transaction fees, as well as factors such as required credit and customer reviews when available. We also considered additional perks, the application process and how easy it is for the consumer to redeem points.
CNBC Select teamed up with location intelligence firm Esri. The company's data development team provided the most up-to-date and comprehensive consumer spending data based on the 2019 Consumer Expenditure Surveys from the Bureau of Labor Statistics. You can read more about their methodology here.
Esri's data team created a sample annual budget of approximately $22,126 in retail spending. The budget includes six main categories: groceries ($5,174), gas ($2,218), dining out ($3,675), travel ($2,244), utilities ($4,862) and general purchases ($3,953). General purchases include items such as housekeeping supplies, clothing, personal care products, prescription drugs and vitamins, and other vehicle expenses.
CNBC Select used this budget to estimate how much the average consumer would save over the course of a year, two years and five years, assuming they would attempt to maximize their rewards potential by earning all welcome bonuses offered and using the card for all applicable purchases. All rewards total estimations are net the annual fee.
While the five-year estimates we've included are derived from a budget similar to the average American's spending, you may earn a higher or lower return depending on your shopping habits.
To determine which credit monitoring services offer the most benefits to consumers, CNBC Select analyzed and compared 12 services that offer a variety of free and paid plans.
When ranking the best free credit monitoring services, we focused on the following features:
When ranking the best paid credit monitoring services, we focused on the following features:
Keep in mind that credit monitoring services can only alert you of changes to your credit file, not fix or prevent any errors.
Information about the Wells Fargo Cash Wise Visa® Card, U.S. Bank Visa® Platinum Card, Amazon Prime Rewards Visa Signature Card, Citi Simplicity® Card, Chase Freedom®, and Capital One® cards, has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
Petal 2 Visa Credit Card issued by WebBank, Member FDIC.
To learn more about IdentityForce®, visit their website or call 855-979-1118.