Everyone likes perks. We like them at work; we like them when we are given “preferred customer” status by retailers that we frequent. And, for quite some time now, we have been able to get perks when we open up a major credit card account.
These perks are called “rewards” and come in a variety of forms. So how do you find the best one?
Let’s start with some bad news - No Single Card Fits Everyone
This is probably the most important thing all consumers need to understand. Every major bank offers cards with different types of plans, programs, and rewards. And if you already have a card with a bank, chances are you will continue to get offers from that same bank as they issue new cards with new interest rates and rewards, so that you can compare those cards against the one you currently have. And, if your credit score is great, you will receive offers from other banks as well, all with a variety of perks and rewards.
In order to choose the one that will really be the most valuable for you, you will first have to do a bit of self-study on your spending habits and payment history, and compare those with the offers you receive.
If you keep your credit card statements, or have access to them online (and you should), you can categorize your expenditures. Where do you use your cards most? Gas? Retail? Groceries? Large home-related purchases (appliances)? Travel? Entertainment?
Now, look at your history of payments. You probably have a better idea of this without having to look it up — you know if you generally pay your balances in full or have a “running” balance on which you pay interest.
Other things you need to consider are as follows:
- What do you estimate you will spend in the next year or two in your categories?
- Is your new card to be used for personal or business purposes?
- Will you pay in full or maintain a balance?
- How long do you expect to keep this card?
- What kinds of rewards are most appealing? Travel? Cash back? Lower interest? Balance transfers with very small fees? Zero percent interest for an extended period of time?
You will have to consider all of these things in order to find the cards with the best rewards for you.
You will find dozens of online sites that offer comprehensive comparisons based upon your individual situation and the types of rewards you are looking for. There are even some sites that will take your spending and payment habits and complete the analysis and recommendation for you. All you have to do to get this is provide all of the information you already gathered and input it, along with the prioritized list of the rewards you want.
If you are looking just for travel rewards, you will be comparing cards according to point schedules, especially introductory bonus points for spending a set amount in the first three to five months. You will also be looking on travel restriction dates, annual fees (if any) and if there are 0 percent introductory interest rates. You will probably want to check out Chase Sapphire, Capital One Venture Card, and BankAmericard Travel Rewards Card.
If you are looking for cash-back rewards, you will want to check the details of card offerings against your categories of spending. Some cards have great cash-back rewards in rotating categories every three months or so, so if you like the categories that a card offers, then that is for you. Other cards focus primarily on groceries and gas, with a few retailers thrown in (e.g., Amazon).
The other comparisons for these cards include annual fees and introductory 0 percent interest rates. Winners in these categories include Citi Double Cash Card, Chase Freedom, and American Express Blue Cash Preferred. A fourth consideration should be Discover with no annual fee and 0 percent interest for 12 months.
Many banks offer balance transfers from other cards, with 0 percent interest on those transfers for a period that usually ranges from 12 to 15 months, although 21 months is not unheard of these days.
The most important consideration here is the transfer fee. The usual transfer is 3 percent of the balance or a set fee, whichever is higher. However, if you have a hefty balance that you need to transfer over, consider this: you pay 3 percent of that balance in a transfer fee, but then you have no interest on that balance for at least a year. If you old credit card was charging 12 to 22 percent (common), then you are really saving a lot of money by transferring.
Some banks are offering balance transfers with no transfer fee at all. Rather than just reading the information on the offers that are sent in the mail, get online and check out cards by balance transfer and do some careful comparisons. Discover, for example, offers a balance transfer of $.00 and a 0 percent interest rate for 15 months. Citi Simplicity, on the other hand, has a 3 percent transfer fee but 0 percent interest for 21 months. It really pays to compare.
An excellent credit score will generally be anything over 725. If you have this type of score, then you will enjoy some of the lowest interest rates in the industry, along with lengthy 0 percent interest rates on both balance transfers and purchase balances. The lowest in the industry is 11.99 percent and it is offered by Capital One Venture Card currently, along with 0 percent interest for one year. This deal is closely followed by Citi Simplicity and American Express Blue Cash with a 12.99 percent but 0 percent interest for 15 and 21 months respectively.
There Really Are Differences!
Quite often, the public hears that credit cards differ in their rewards and interest rates only based upon the credit worthiness of the applicants. This is not true, obviously, although credit score is a large factor in the interest rate.
As you look at card options, and you see all of the attractive rewards features, you obviously now know that you will look for those that offer rewards that you will actually use, and that those rewards vary significantly among banks.
It is always tempting to see those credit card offers in the mail, and if you have a substantial amount of debt at high interest and can get a balance transfer at 0 percent interest for 15 to 21 months, then of course you should take advantage of that offer. You should also know, however, that each new card you obtain lowers your credit score. You would think, then, that canceling an old one when you get a new one should balance that out. Actually, it does not work that way. Your score also takes a hit when you cancel a card.
To avoid the double hit of adding another credit card, take the card from which you transferred the balance and cut it up. But do not cancel the account. You will have effectively canceled the card yourself by destroying it. Eventually, the bank will cancel you, but that will be down the road, and the hit from getting the new card will have been recouped.
The credit card industry is huge, and billions are made in annual profits by large banks on the interest collected from debtors who carry balances. Offering rewards is a highly competitive business, moreover, because statistics show the following:
1. The existence of travel and cash-back rewards encourages consumers to use their credit cards more than they normally would without such rewards
2. Even with low and/or no-balance transfer fees and 0 percent introductory interest rates, the majority of consumers who have carried balances on their previous cards will also continue to carry balances on their new cards beyond the introductory period.
So, take advantage of those rewards that you will actually use, be moderate in your use of credit overall, and you should be able to enjoy the perks that come with these offers!