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How to Decide Which Credit Card to Use for Your Holiday Shopping

Jim Wang

During the holiday season, you'll hear a lot about the importance of lists, how you need to stay on budget, and how to avoid getting sucked into the latest deal. While those are all important, I want to focus on one step in the process : the checkout.

When you go shopping this month for holiday gifts, picking the right credit card for the job is critical because selecting the wrong one can negatively impact your finances for months. In some instances, it has to do with cash back. In others, it has to do with card benefits you may have never used. Consider these three factors when deciding which card to use:

The Extended Warranty. Many credit cards offer an extended warranty that trumps those offered by retail stores, like Best Buy. When you make a purchase with American Express, for example, they automatically double the manufacturer's warranty up to an additional year for free.

For any manufacturer's warranty of less than five years, AmEx will also double it up to one year when purchased with your card. So if you purchase an item with a three-year warranty, they add an additional year. If you purchase a product with a six-month warranty, they add an additional six months.

A similar extended warranty protection is available on Premium MasterCards and Visa Signature cards. On the MasterCard, the original warranty is extended up to an additional year with a maximum of three combined years. On Visa Signature cards, the coverage is similar to AmEx except that only items with warranties shorter than three years are eligible).

Remember Reward Points and Cash. We all know that the best way to save on a purchase is by making sure you get the most reward points or cash back as possible. Personally, I keep my credit card system simple by using only two cards, but if you have several cards at your disposal and aren't sure which one to use, take a few extra moments to check which card offer the most in terms of rewards.

Things get tricky when you have cards with rotating reward schedules, such as Discover. For October through December, Discover Card's 5 percent cash back bonus is available at department stores and online shopping. When the calendar switches over to 2013, the categories will be restaurants and movies. It's important to be aware of these changes so you bank as many rewards as you can.

Beware of Department Store Cards. Department stores are good at this game--they offer 15 or 20 percent off your purchase if you apply for their store credit card. If you're making a large purchase, such as all of your holiday shopping, this might be a good offer. Just be aware that when you apply for a new credit card, a hard inquiry will appear on your credit report and your score will take a small hit.

This can be problematic if you plan on buying a car or a house next year, as a small hit can reduce your score to the next grouping and increase your interest rate. Saving a few dollars on a purchase today sounds good, so long as it doesn't end up costing you thousands in a higher interest rate on a home loan.

There are plenty of credit card promotions that offer you tens of thousands of airline miles or gift cards if you can spend enough to meet the provider's spending criteria. For example, the Chase Freedom card has a promotional offer in which you can get a $100 bonus (you get 10,000 points, worth $100) if you spend $500 in your first three months. This may be a better offer than a department store card, depending on how much you're spending, so check for promotions.

After all the lists and all the budgeting, it's what you do at the register that matters the most.

Jim Wang writes about personal finance at Bargaineering.com, a personal finance blog that he founded in 2004.

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