First things first

Before embarking on your research, ask yourself how you truly need to use a credit card. Some people prefer to use a credit card for monthly bills and travel, while others want access to carry larger expenditures that can’t all be paid back in one billing cycle. And then there are those who are better off with no credit card at all, namely those who are not yet financially established and risk damaging their credit by carrying high balances.

Plan to pay in full each month?

If you make frequent purchases or travel regularly, a cash back card might best suit you.  Look for one that pays about 1.5% cash back and has no annual fee.  The interest rate might not be your biggest concern if you’re paying your bill in full each month, but you should still look for the best rate for the cash back offer you can find.  If you have very good credit, you should be able to find a no-fee, cash back card with an APR no higher than 14%.

Need to carry a balance?

If you typically cannot pay off your full balance of purchases monthly or if you need a credit card for emergency situations that might exceed your normal budget, your best bet might be a credit card with a low interest rate. Consumers with very good credit might be able to find accounts with an APR of 10% to 12%, while those with good but not perfect credit might find a card with 15% APR. Most national credit card accounts start closer to 17% APR. Shop around for a card with no annual fee but keep in mind that even a small fee could be financially advantageous if the APR is competitive.

Want more flexibility?

If you have both of the above needs, it might be in your best interest to carry two cards.  Use a cash back account for your everyday small purchases and pay the balance off in full each month.  Separately, carry a low rate card that you only use when you have to charge an expense that can’t be paid back in one billing cycle.  You are giving up the cash back on that purchase, but you will be using credit at the lower rate, which is the smarter thing to do.

Pro tip for business owners

If you have a small business, look for a business credit card account that also offers a cash back feature.  These can sometimes pay a higher cash back rate than personal account and offer special reporting features for iteming expenses for a tax return.

Article by Dennis Pershing, Executive Vice President of Consumer Lending, who has more than 30 years of experience in the industry.