Is that credit card offer still taunting you?
Credit cards don’t have to be the evil financial vehicles some people claim, but you should do your homework to make sure you’re getting the best deal that coincides with your spending habits.
Last week we talked about annual percentage rates and how important of a point this was to consider in your decision to apply. To recap, don’t apply if the APR could overwhelm you in the event you get behind in your payments.
We also talked about the importance of not feeling pressured into applying for credit cards, welcome bonuses, and whether or not those welcome bonuses were ones you could reasonably afford. If you haven’t read that article, take a look at it now, and then come back to continue in this two-part series.
Are you signing up for the best welcome bonus?
Sometimes credit card referrals are better than what the banks advertise on their own websites. American Express, for example, is currently advertising 60,000 Membership Rewards on its Gold card (affiliate link) after you spend $4,000 in the first six months. If you go through Resy, however, you could get 75,000 Membership Rewards plus 20% back in dining up to $250 in the first 12 months. I’ve seen the Resy offer go as high as 90,000 Membership Rewards for the Gold card in the past 12 months.
Always check to make sure you’re getting the best offer at the time. Run a search for the best offer on the card you’re interested in. Sometimes you’ll find good offers buried in user forums and in the comments of credit card blogs, and if you become an avid credit card holder, prepare yourself to be burned when the credit card issuer unveils a brand new welcome bonus that blows the one you grabbed out of the water.
What is the value of the award points?
The welcome bonus is only as lucrative as the value of the points you’re accumulating. For instance, American Express Membership Points transfer to 20 partners, three of which are hotel chains, but outside of bonus transfer promotions, you’re usually better off maximizing these points by transferring them to airlines, not hotels. Even then, you’re going to get the best value out of your points by using the points on international flights.
If you have no plans to travel internationally, and have no plans to try to upgrade beyond economy, you’re going to get minimal value from your stash of Membership Reward points.
Meanwhile, Chase gives you the freedom to transfer Ultimate Reward points to Southwest Airlines, not a bad deal if your travel tends to be domestic. Chase also lets you transfer to Hyatt, arguably the best hotel chain for point redemptions. The down side to Hyatt? The chain has a limited footprint.
Make sure the welcome bonus is advantageous to your purchase and travel patterns. In a separate post we’ll drill down into cents per point rates and other aspects of award points, but at minimum, do your homework about the ways your welcome bonus can be redeemed. Make sure it fits your lifestyle.
What is the annual fee?
It seems silly to think you should ever have to pay to use a credit card, right? Always be mindful of how much you’re paying in annual fees, but don’t pass on a credit card just because it has an annual fee. If the credit card lines up with your spending habits, you may discover the annual fee more than pays for itself.
Let’s go back to the example of the Sapphire Reserve (affiliate link). Its annual fee is $550, which is a substantial financial bite, but the sting wears off a little when you realize you get back $300 in travel credit. This means that when you reserve a flight, book a hotel, pay for tolls, or take an Uber, you’ll automatically get money back in the form of statement credit up to $300. Chase is quite liberal in how it defines travel expenses, so the annual fee for the Sapphire Reserve actually becomes $250.
But, is it really worth $250? Let’s explore just one benefit that brings down the annual fee even further.
Sapphire Reserve users receive a $5 monthly DoorDash credit. This is on top of the DashPass card holders are eligible through December 2024. An annual DashPass subscription costs $96, so between the monthly credit and DashPass subscription, you’re talking $156 in savings. Without breaking a sweat you can bring down your annual fee to $94. This, of course, assumes you see value in being able to order pickup or delivery through a service like DoorDash.
When evaluating the annual fee, also consider the perks that come with the card. Sticking with the Sapphire Reserve, you get complementary Global Entry, lounge access, and excellent travel protection, among other benefits.
I am not suggesting a card’s annual fee is indicative of how good or bad a card is. Sure, the more you expect out of a card, the more you’re going to pay, but even the American Express Platinum’s (affiliate link) whopping $695 annual fee offers a range of ways to keep down the impact.
If you would rather not fuss with annual fees for any reason, my recommendation for Chase’s Freedom Unlimited still stands. It’s a great daily driver, pairs well with Chase’s premium cards to compound Ultimate Reward points, and has no annual fee.
How often are you going to use the card?
Amazon’s Rewards Visa Signature card gives you 5% back on purchases through Amazon and Whole Foods. Technically, the card has no annual fee, but in order to get the full 5% back, you need to attach a Prime subscription to it. So you’re basically paying $139 annually to maximize the card.
I shop often enough at Amazon to make the points worth it. I’ll usually spend the year earning points, and then at the end of the year I cash out my points to put toward my Christmas shopping. We’re not talking a fortune here, but especially during an inflation, every little bit helps.
Don’t forget to take advantage of student discounts and similar deals to bring down the cost of Amazon Prime.
If you spend enough time shopping at a particular merchant, it might be worth looking into their credit card. Just do your homework and make sure the perks make sense with your personal spending habits.
Did you check the bank’s credit card application restrictions?
The example most credit card churners will instinctively jump to is Chase’s infamous 5/24 rule. It’s unwritten but well-known.
The rule is basically this: Chase will not approve you for one of its cards if you have obtained more than five cards in the past 24 months. It’s almost charming the way Chase appears to be looking out for your financial well-being.
Whatever their rationale, Chase is not the only bank with restrictions. Check to make sure you are not going to trip one of those restrictions and get denied in the process. It’s an unnecessary hard pull against your credit report and will bring down your credit score, even if temporarily.
Holy smokes, between last week’s post and today’s advice, that’s a lot to consider for a credit card application!
Yes, it is, and honestly, it ought to be.
The total U.S. outstanding credit card debt as of the first quarter of 2022 was $1.103 trillion. Paying off your balance every month is good for your finances but terrible for the institutions that, erm, bank on you paying late, or paying over time.
What credit cards have you been eyeing? What’s holding you back from applying?