What’s the Best Credit Card?

Since starting this website, many of my friends started coming to me with financial questions. One I hear often is: What is the best credit card?

I have, in fact, recommended specific credit cards to them based upon their unique situations. And while it’s more difficult to single out one credit card as the best credit card for everyone – even everyone in their twenties, it seems to be a popular question, so I am going to take a shot.

First, let’s look at the requirements of the “best credit card”.

There should be no annual fee. I wrote an article on annual fees a while back that looked at a few exceptions to this rule, but most people our age have no business paying an annual fee for a credit card.

The regular interest rate should be low. Credit cards confuse interest rates further by offering extremely low “teaser” rates for either balance transfers or purchases made in the first six months or year you have the card. The best credit card may, in fact, have these teaser rates, but it should also have low rates.

The card should include a straightforward, valuable rewards program. Let’s face it, credit card rewards programs are nothing more than a marketing scheme. The value of credit card rewards are only a tiny fraction of the interest rates the average user pays. Assuming, however, you pay your balance in full every month, you can get all the suckers like me that racked up credit card balances to pay for your free trip to Cozumel.

Some people devote a lot of time dissecting credit cards rewards programs to figure out which ones are the best values. It all comes down to two variables: how quickly you earn points and how many points you need to collect your rewards.

The industry average is you earn one point for every dollar spent and can reward 10,000 points for a reward of up to a $100 value. So that equals a penny per point. Better cards allow you to earn more points – sometimes up to five points per dollar – for making certain “qualified” purchases. This is frequently the case with purchases made at a particular store or on an airline when you hold that company’s credit card.

When you redeem your points, the best value often comes from getting airline travel or gift cards to stores and restaurants. That’s great, but not if you don’t want to fly anywhere or head on a shopping spree. What if you just want $100 to save?

With average rewards programs, it will actually take you more points to earn cash. As much as 25% to 50% more, to be exact. Not such a good deal.

Based on these criteria, there’s one card that really stands out as the best credit card in my book: Blue Cash from American Express.

It gives you 3% cash back on groceries, 2% cash back on gas and groceries, and 1% back on everything else, with now limits.

Note: Some people shy away from Amex cards because there are still a *few* places out there that only accept MasterCard and Visa.