I get lots of questions about credit cards. Because so many blogs cover the subject, I’m getting away from doing a lot of credit card posts, but for those who ask, I want to keep my credit card coverage current. So I give you:
- Six simple credit card rules.
- My favorite credit cards.
- A head’s up on current credit card sign-up bonuses.
I’ll update this as necessary (about once a quarter). Enjoy, and if you have any questions about my views on anything credit cards post them in the comments.
Note: Credit card affiliates are one way this site makes money, so occasionally writing about them keeps the lights on. Most credit cards will pay me and other bloggers if somebody clicks a link on our site and successfully applies for a card. Because most banks do this, I don’t feel like there’s a conflict of interest recommending one card over another because one is an affiliate and one isn’t—but I want you to know and make that call. In this post, cards for which I have an affiliate relationship with are identified with a dagger symbol (†).
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TO START, SIX SIMPLE CREDIT CARD RULES
After five years of blogging, sometimes I feel like I write the same thing over and over again, but the good news is I’m now able to boil that advice down more and more. If I only had two minutes to sum up my credit card advice, this would be it:
- Do use a credit card. If you’re not in credit card debt*, use a rewards credit card for almost everything you buy. For one, if you can get between 1-5% back on stuff you buy, why wouldn’t you? Second, credit cards provide a convenient way to track everything you buy. Third, credit cards are safer and more convenient than debit cards.
- Pay off the balance every month, no exceptions. As somebody who has come back from the brink of financial ruin thanks to ridiculous credit card debt, I will never again use credit cards for things I can’t afford to pay off at the end of the month. So as long as you pay your credit card balance in full every month, the APR on the card you pick doesn’t matter (you’ll never pay a dime of interest).
- When in doubt, choose a cash rewards credit card. For the average spender, cash rewards credit cards provide the most bang for your reward buck. Two possible exceptions: 1) you’re hoping to bank miles for a pricey international airfare (in which case the miles you earn are worth more) or 2) you travel for work so often you can benefit from perks that come with mileage cards.
- Re-evaluate your card every couple of years. Credit cards are constantly changing their terms and rewards and, often, better cards are available to new customers. Banks frequently jack interest rates and even trim rewards programs on existing cardholders because they know most people are too lazy or ignorant to switch. Prove them wrong.
- Don’t cancel old credit cards automatically. When you get a new credit card, you may be tempted to cancel your old one, but don’t cancel that old card just yet. Old credit cards are good for your credit score, even if you don’t use them. Cut them up for security sake, but don’t cancel them. The possible exception is if the old card charges an annual fee, go ahead and cancel it if you won’t be using it.
- Annual fees can be OK. Often times, cards with annual fees have better rewards programs that will benefit card members who spend a lot on the card each year. Consider what you hope to earn in rewards from the card, and you may find out the annual fee is well worth the additional perks.
*Note: There is a time not to use credit cards…when you’re struggling to pay off long-term debt. If this is you, focus on getting out of debt before you shop for a new credit card.
MY FAVORITE CREDIT CARDS
With that said, what are my favorite credit cards? It boils down to these two:
I have both an American Express card and Chase Freedom, the latter of which I use for most purchases simply because Visa is accepted everywhere (I do, however, greatly prefer Amex’s customer service and Website). Chase Freedom pays unlimited 1% cash back on all purchases plus 5% back on categories that change every three months, up to a dollar max.
The Blue Cash Everyday® Card from American Express pays 3% cash back at U.S. standalone supermarkets, 2% cash back at U.S. standalone gas stations and select department stores, and 1% on everything else. There’s also a preferred version which, for a $75 annual fee gets you accelerated rewards: 6% cash back at U.S. standalone supermarkets and 3% cash back at U.S. standalone gas stations and select department stores. (The first $6,000 of purchases at U.S. stand-alone supermarkets in a calendar year qualifies for 3% or 6% cash back; 1% thereafter.)
If You Ever Carry a Balance
As someone who knows all too well how quickly you can get in trouble with credit cards, my advice to you is never carry a balance on your credit card; pay the balance off each month. Failure to follow this advice is, at best, an expensive way to borrow money and, at worst, a slippery slope that can quickly put you tens of thousands of dollars underwater.
That said, I know many people choose to carry a credit card balance occasionally—to finance a big purchase over a few months or take advantage of a 0% teaser APR, for example. If you must do this, pay careful attention to which card you’re using, because many of today’s cards with the best rewards have the highest interest rates and—at those rates—carrying even a small balance quickly adds up to more than whatever rewards you earn.
If you’re looking for a good contender, there is the Discover it Card† which combines 1% cash back with 5% back on changing categories with strong, U.S. based customer service and the best online account management I’ve seen. There is also an 18-month 0% balance transfer option right now†. Both cards have regular APRs that are among the lowest for the best-qualified applicants..
Although these are the cards I’ve liked for awhile, other issuers are catching up with the cash rewards options.
The Bank of America BankAmericard Cash Rewards card just changed its rewards structure to pay 1% cash back plus 2% on groceries and 3% on gas, but you only get those higher rewards rates on up to $1,500 in purchases per quarter.
Additionally, the new Capital One® Cash Rewards – $100 Cash Back Bonus offers 1% on all purchases plus a 50% bonus on your rewards at the end of the year (essentially 1.5% cash back).
CREDIT CARD SIGN UP BONUSES
In most cases, the best reason to apply for a new credit card is to get a card that’s going to deliver the best long-term value to you based upon how you spend. That said, if you can find a good card for you that’s offering $100, $200 or even more as a sign up bonus, even better…
Chase Freedom® Visa® gives you $100 cash bonus if you spend $500 on the card in three months plus 1% cash back on everything and 5% cash back on categories that change each quarter (see a pattern yet?).
Although I think cash back credit cards are a better deal for most people, travel cards can be attractive 1) if the idea of earning free travel seems more “rewarding” than just cash or 2) you travel frequently enough to benefit from card perks like free checked bags or priority boarding.
The Chase Sapphire Preferred Card† (a $95 annual fee) is still offering a hard-to-beat 40,000 bonus points for signing up and spending $3,000 in the first three months. They claim that’s enough for $500 in air travel or hotel accommodations.
Compare More Cards
Disclaimer: One way I’m able to support my blogging while helping you is to link to products I like and earn a referral commission if you sign up. I only link to products I trust. That said, you should know that if you click the links to these cards and ultimately apply for and are approved for that card, I may be paid for that. If you choose to support Money Under 30 in that way, thanks!
This content is not provided or commissioned by American Express. Opinions expressed here are author’s alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.
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About David E. Weliver
I love credit cards too! They are the way to earn money on everyday rewards. I personally like chase and discover. Both feature rotating rewards now.
I would just add a caveat to other people who may be in my shoes. I’m 28 and have never had a credit card, although I have found through research that one of the best ways to establish credit is to have and use a credit card and then pay it off each month, as David suggests.
My problem was that I had a ‘fair’ credit score but very limited credit history, even though I make a decent salary and always pay my bills on time. I applied for a card through a well-known issuer and was immediately denied due to lack of credit history. When I contacted the company, they basically laughed at me. This single inquiry lowered my credit score by 20 points. It’s fairly devastating to have such a mediocre score to begin with, but to see it go down so dramatically was not fun. It’s also interesting that someone up to their ears in debt would stand a better chance of getting a credit card than a young, stable adult.
Although it would have sounded counter-intuitive to my 18-year-old self, I recommend getting a basic credit card while you’re still in college–or convincing your parents to put you on their card(s) as an authorized user, just for a few years so you can begin to build your credit. It’s a catch 22, much like needing experience to land a job but only getting experience from said job.
(I have since applied for a VERY basic, no-frills card from my bank, where they can see my true balance and that I’ve never gone overdrawn or had any financial drama. The odds of approval are good.)
Thanks for your insight, Tommy. I should include a disclaimer in this post that the advice here is for those that have established credit histories, which is getting increasingly harder if you don’t do it while a student or with your parents as cosigners. I would second the advice that people get on a parent’s credit card as an authorized users when they still can—and that for your very first credit card, it’s not about the name on the card or the rewards, it’s about getting any card that will help you build your credit.
Correction on the Chase Sapphire Preferred Card: when you go to the link, it says you have to spend $3k not $1k you have to spend to get the rewards…
Good catch, Sam. Corrected.
Not sure if I completely agree with your annual fee statement. Depends on where you are in life and what you are going to do with the rewards.
It’s just a matter of math. If you spend a lot on your card, the higher rewards of the card with the annual fee may make it worthwhile. To use some arbitrary numbers for example:
Compare a card with 1% cash back and no fee (Card A) to a card with 2% cash back and a $100 annual fee (Card B).
If you only spend $1000.00 a year on the card, you get $10 back with card A but lose $80 with Card B ($20 cashback – $100 fee). If you spend $10,000 per year on the card, you get the same $100 with card A as you do with card B ($200 cashback -$100 fee). Anything over $10,000.00 each year, and you are better off with Card B.
I’m not a big fan of the annual fee cards. I don’t need any motivation to spend more money just so I can make a little more money. I’d rather keep it simple and just get the less valuable perks. The thing is, the card isn’t going to make me money. It’s just saving me money…if that makes sense. If I want to make money, I’m going to put into money-making investment vehicles like CDs, IRAs, etc. (plug: see the last article).
Also, in response to David’s comment in the article about “if you can get between 1-5% back on stuff you buy, why wouldn’t you?”
Because credit cards are paying us back 1-5%, they are making up for that money by charging the sellers. The sellers are making up for that charging by raising prices….and around we go. If we all quit using credit cards to get that 1-5% back, then we would need to save 1-5% anymore because the prices would already be lower (chicken and the egg). But, this will essentially never happen because of game theory. Either everyone will have to quit, or no one will quit and because we all want to benefit ourselves over others, someone will not quit and therefore everyone will not quit.
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“I’m not a big fan of the annual fee cards. I don’t need any motivation to spend more money just so I can make a little more money.”
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I don’t see it as motivation to spend more money. If you ALREADY spend a lot on your card, that the increased rewards exceed the annual fee, you are throwing money away by not using the card with higher rewards, but an annual fee.
That being said, the card I use does not have an annual fee, because I haven’t found one that has rewards high enough to justify it yet.
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“The thing is, the card isn’t going to make me money. It’s just saving me money…if that makes sense. If I want to make money, I’m going to put into money-making investment vehicles like CDs, IRAs, etc. (plug: see the last article).”
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I don’t really get what you’re driving at with this. It doesn’t seem applicable. Credit card rewards are about getting money back for things you are going to buy anyway. Putting money away in CDs, IRAs, etc. is about saving money and not spending it. I actually put all my credit card rewards into a separate savings account (i.e. it earns me money). Right now, I have several thousand dollars in that account which I would not have without the rewards. I think that would qualify as making me money.
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“Also, in response to David’s comment in the article about “if you can get between 1-5% back on stuff you buy, why wouldn’t you?”
Because credit cards are paying us back 1-5%, they are making up for that money by charging the sellers.”
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You already provided the counter argument. Since not everyone is going to quit using cards, the sellers will still be charged the 1-5% and their prices will continue to reflect that, so why shouldn’t you get the cash back if you can? You’re throwing the money away if you don’t.
Chase’s last point is an important one, but ultimately I agree with Brian—it’s going to take government regulation to do anything about the 1-5% interchange fees the card companies charge merchants. And that’s probably not going to happen. The banking lobby has already ensured it’s illegal for merchants to charge more for credit card transactions, although you can still find some who skirt the law by offering a discount for paying in cash. Legal or not, when merchants do discount cash purchases—if it’s more than 1 or 2%, that’s how I’ll pay. Everywhere else, I’ll use a card to try to capture my share of those interchange fees back—otherwise it’s just money on the table.
I’m an avid traveler, and I have two credit cards (both with annual fees) that are tied to Continental and American Airlines. I use these for ~95% of my purchases. I am always tempted to sign up for new credit cards offering 20k or 50k bonus miles because that pretty much spells instant travel for me. However, I have been cautious about this and have not done so. What is your thought about signing up for new credit cards to take advantage of the miles, and then not use the credit cards thereafter?
I’m an avid traveler and have two credit cards (both with annual fees) that I use for ~95% of all my purchases. They are tied to Continental and American Airlines. I never carry a balance–I always pay them off monthly. Because of my love of travel, I am constantly tempted to sign up for new credit cards offer 25k to 50k in bonus miles. However, I’ve been cautious thus far of signing up for new credit cards just to take advantage of the miles–I worry it won’t be good for my credit. What’s your take on signing up for these cards, and then not using them once you have secured the “luring” miles?
I had a citi card for about 10 years and then they did a few things that annoyed me. They made a few errors in their favor like charging interest when I paid in full. And it coincidentally happened to my husband too, so we both switched to a capital one card. I like it way better. I’m pretty loyal to my credit cards. I only have 1 and they get all my business for a long time.