Picking the Perfect Credit Card for You

Pile of credit cards, narrow focus. iStockphoto

Points. Cash back. Low rates. Air miles.

Credit cards offer an array of tempting rewards as their issuers try to get your business.

But what types of cards are the best match for someone with your spending habits? And which cards lead the pack in each category?

CBSMoneyWatch.com correspondent Farnoosh Torabi shared valuable insight, on "Early Show Saturday Edition."

What to Look for When Choosing a Card

If you're someone with a balance, then cards with rewards are not the way to go. They can cost you more with higher fees, and I think they may also encourage you to spend more money to try to earn the rewards.

However if you're someone who responsibly pays your cards off each month, then you have more options.

Reward cards are for someone who isn't carrying a balance, who spends a lot of money, and has good credit. If you fit that description, you should pick a card that best matches your spending habits.

Lowest Rate Cards

Low rates are great for people who are carrying a balance. I like the Capital One No Hassle Cash Rewards Card: If you want a low introductory rate (I love this, because there's no transfer fee!), go with Capital One No Hassle Cash Rewards. It's got a zero percent annual percentage rate (APR) until March 2011. After that, it's 15 percent rate, which is fair because that's about the national average.

But if you want a steady low rate, head to your local credit union or small, community bank. The one I like is the Pentagon Federal Credit Union's PenFed Promise VISA Card. The intro APR is 7.5 percent for the first three years, and then the rate varies. If your three years were up right now, it would be 10 percent.

Best Cash Back Card

This is the most popular perk. After all, cash is king. This is best for folks who pay off their balances in full each month. You will need good-to-excellent credit to qualify for most of these offers; otherwise, the interest you pay will likely outweigh any cash-back perks. They're also becoming harder to find.

I really like the Discover More Card -- it's my top overall pick. No annual fee, no APR for first six months and five percent cash back in rotating everyday categories we use all the time (such as gas, groceries, airlines, home improvement.) Watch the calendar and go online to see the category that's chosen. Then you get one percent back on everything else, which is still great. Plus there's no annual fee, which is rare for most cash-back cards.

So, essentially, if you spend $1,000 a month, you get $50 cash back, in your pocket! It's a great card, with very few few strings attached.

Financial Reward Cards

I love financial reward cards, because they helps you save a bit more for every dollar you spend. The best one we found was the Fidelity Rewards American Express Card" -- definitely a top pick. These cards give you two percent of your purchases into a deposit in an eligible Fidelity account. There's no annual fee, which is great, and no cap on cash rewards. You can choose cards based on the type of investment you prefer: a brokerage account, a retirement (IRA) or a 529 college plan.

So, essentially, if you spend $1,000 a month on this rewards card, you can earn $240 a year in cash rewards that are automatically invested into a (Fidelity) investment account. Think about that, because $240 at a modest five percent interest rate for 10 years gives you more than $3,000 saved just for using the card.

Airline Miles Reward Cards

Again, only consider these cards if you don't intend to carry a balance, since the interest rates tend to be much higher on these types of cards. Whereas the average credit card rate in the country on a traditional, no-rewards card is about 15 percent, these cards can have 20 percent, 25 percent interest rates. With all miles cards, there's usually an annual fee, as well, anywhere from $40 to over $100 a year. So, you need to do the math, consider how frequently you travel and make sure you'll benefit from the points/fees structure. Remember that you typically need to rack up 25,000 miles to get a free round-trip ticket (figure that's three round trip tickets east to West Coast).

Of these cards my pick is the Capital One Venture Card. With this card, you earn two miles for every dollar spent you can spend points on ANY airline, with no blackout dates, no expiration date, no limits! Amazing! So it's wonderful for someone who travels a ton. Although the annual fee is a hefty $59 -- it's free the first year. That means you need to spend at least $3,000 a year on this card to break even.

That said, rewards can be redeemed for any travel-related expense, such as airline, hotel, cruise line and rental car transaction. Basically, $15,000 in spending earns you 30,000 points/miles, which can buy a $300 airline ticket on ANY airline (100 points equals a one dollar reward.) So again, it's a great, great card for frequent travelers.

Cards with Points

In general, points cards are not my most favorite category of rewards cards, mainly because, when you go to redeem your points, the stated value of merchandise is frequently inflated, and you have to spend so much before you can redeem your points for stuff you'd want. But they do offer flexibility.

Of this group, I like the Citi Forward Credit Card -- it's my top pick. There's no annual fee, and no APR for first seven months, which is always good. The great thing about this card is it rewards you for making purchases, but also for good behavior! You get five points for every dollar spent on dining, books, movies and music, and a point for other purchases. But then you get 100 points each billing period when you pay on time and stay under your credit line, and another 2,500 points when you sign up for paperless statements. So, it's rewarding you for being green too!

Since this information constantly changes, how can anyone find the best card at any time?

Anyone can look up this information online by using banking comparison sites such as BankRate.com or CardRatings.com." Both of those sites are great at showing you what cards are currently offering, and you can cater the search based on your individual spending habits. So, if you're a mom who spends a ton on groceries, you can search for the card that gives you more cash rewards, or if you're a struggling to pay off debt, these sites can help you search for the lowest rate cards, all ith the most up-to-date information. Another tip is to always try to check your local credit union, since their rates are lower than the national average. Also, try to re-negotiate the rates wof your current cards. It never hurts to check in with the issuers and tell them what your situation is. Perhaps they'll make you an offer to keep your business; then, the grass wouldn't necessarily be greener with another card.

If someones wants to get rid of all his or her cards and start over with a card that's safe, cheap and works to earn money for him or her, what would be the just perfect credit card?

Overall, the Discover More card is the best all-around card. You really can't beat the rewards, and the interest rate is pretty reasonable. Also, when so many families are struggling to get by, having a little extra cash in your pocket as a reward for being responsible is a huge plus.
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