When choosing a credit card, many people work backward: They’re lured by flashy bonuses or rewards before considering whether the rewards actually match up with their spending. That means a whole lot of people are walking around with the wrong credit cards in their wallets.
There is no single best credit card for everyone. The best card for a frequent traveler is not the same as the best card for a homebody, and the best airline card for someone living in San Francisco probably won’t be the best card for someone in Dallas. Many credit cards beat the competition on one feature or perk, so it all depends on what you’re looking for.
The “best” credit card also depends on what you’ll use it for. If you’re working on paying down credit card debt, I don’t recommend that you pursue credit card rewards. You’ll be much better off with a card that helps you pay less interest. But if you pay off your cards in full every month, there’s no reason not to choose a card based on rewards.
Three steps to the best credit card
Assuming you’re looking to earn rewards from your credit card, how do you find the best one for you? Ask yourself three questions, in this order:
- Where do you spend your money?
- What kind of rewards do you want?
- What perks and bonuses are you looking for?
Before you scoff at that list as painfully obvious, take a moment to think about how you chose your last card. I’d bet you took the inverse approach, starting with step 3, or maybe 2, and working back to 1. Almost everyone does, and it severely limits the amount of rewards you can expect.
Why most people choose credit cards poorly
Based on my experience, most people have three types of cards in their wallet: one from the same bank where they have a checking account, a card or two from stores that offered one-time discounts for signing up, and a branded airline card that offers miles.
Out of those, the airline card is probably the favorite for daily spending and was chosen with the goal of earning airline miles, because who doesn’t want to earn free travel?
But this approach fails to take into account how credit card rewards are earned. Most rewards cards tend to reward spending in specific categories. For example, airline cards tend to give 2 or 3 points or miles for every dollar spent with that airline and only 1 point per dollar everywhere else. So unless most of your spending is on travel, you could miss out on hundreds of dollars’ worth of rewards per year.
The best credit card depends on your spending
To get the most value from credit card rewards, you need to find the right match between your spending and the available cards in your credit range. Otherwise, you’re just leaving money on the table.
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Let’s go back to those three questions.
1. Where do you spend money?
You want cards that give you the highest rewards where you shop the most. That means you need to make an honest assessment of where you spend. Do you spend more on groceries or restaurants? Gas or airplane tickets? Chances are that there are a few categories in which you spend more than others and that there are cards that will give rich rewards in those same categories. To bring that advice to reality, NerdWallet’s credit card tool can help filter cards based on their rewards categories.
2. What kind of rewards do you want?
Think about what kind of rewards will give you the best value and the most enjoyment. Would you prefer flexible travel points or airline-specific miles? Or perhaps you’d be happier with the simplest reward of all: cash back.
3. What perks and bonuses are you looking for?
Now you can look at the flashy stuff: the perks and bonuses. Do you want airport lounge access, free checked bags or travel credits? Or would you prefer cash back that you could deposit into your checking account or use when checking out at Amazon?
Finding the best credit card isn’t hard – it just takes some self-reflection. By following this approach, you can greatly increase your rewards earnings with practically no effort. Plus, you can earn even more if you’re willing to carry a few cards, with each optimized for your major spending categories or favorite stores.
Take a few minutes to consider the cards in your wallet. If you’re like most Americans who chose their primary credit card only for the type of rewards it promised, instead of the way they spend money, it’s probably time to find the best credit card for you.
Sean McQuay is a credit and banking expert at NerdWallet. A former strategist with Visa, McQuay now helps consumers use their credit cards and banking products more effectively. If you have a question, shoot him an email at email@example.com. The answer might show up in a future column.