Monday, May 2, 2011

Credit Card Recommendations

This is continuing my credit card section so if you want to read about why you should get a credit card, I would go to my first post.

There are several factors to keep in mind when picking a credit card, but the most important one in my opinion is that it should have NO ANNUAL FEE.  There are so many credit cards available without an annual fee that I don't see any reason to get one that does.  The main benefits with a credit card are already achieved through a standard one, so one with an annual fee doesn't seem justifiable no matter what marginal bonuses are added on.  And annual fees are like a guaranteed cost.  They are not necessary and should be avoided in looking for a credit card.

The second thing I look at is the rewards.  Most cards give 1% back as a basis, either through cash back or points, and have additional benefits on special vendors or in revolving categories.  This is how you measure the potential return a card can give you on how much money you spend.  There is often also a nice signup bonus where you can get $50-$100 after your first purchase or spending a set amount of money in a set amount of time after receiving your card.  Also, I personally prefer cash-back but there are other options such as points and miles that you may prefer.  It is important to look at what rewards program your card will offer and if it matches your tastes.  I'll mention some of the rewards with certain cards below.

The third thing to look at is the network.  I generally find card acceptance for networks fall into two tiers: Visa and Mastercard are the most widely accepted while Discover and American Express seem to have lower acceptance, although this has recently been changing.  I believe that Discover's student credit card is fairly popular, and I generally don't have too much problem with its acceptance at vendors in general.  Depending on how much of a credit history you have, I would recommend trying to get a Visa or Mastercard, all else being equal (rewards and annual fees).

Another important feature to pay attention to is the APR (annual percentage rate).  However, I would say this is the least important number if you do what I do and pay off your entire bill at the end of each month.  The APR is the interest rate charged on any unpaid debt after the grace period.  I'll have to admit that I don't know the APRs of any of my credit cards simply because I never pay interest.  This number generally varies between 10-20% but may be higher or lower and it is very important to pay attention to it if you are someone who is likely to be unable to fully pay the balance on your card at the end of the month.

Now I'll list the credit cards I have with some comments and ratings (out of 5 stars, *):

**** Discover Student Rewards Card (Discover): This is a fairly standard card for students since it is fairly easy to get.  I started out with a $500 credit limit and it has basic cash-back rewards.  It has a revolving 5% cash back on certain categories like groceries, restaurants, department stores, and travel.  For example, from January to March, I can get 5% cash-back on restaurant purchases.  These revolving 5% cash-back is subject to a maximum limit (i.e. 5% cash-back on up to $600 of grocery purchases), so make sure to pay attention to that if you are spending partially to get the cash-back.  It is also important to note that the card normally gives UP TO 1% cash-back on other purchases (I believe it is actually around 0.10% up until a certain spending amount before it actually becomes 1%).  I usually only use this card on when I have the revolving 5% bonus.  Something that is really nice about the rewards system though is that after earning, let's say, $20 in cash-back, you can actually get another bonus and trade those rewards for a $25 gift card.  This increases the yield and makes the Discover card one of the most attractive rewards vehicles in terms of credit.  Again, the acceptance is not ubiquitous but there probably won't be too much difficulty with places accepting the card.

** Citi Forward for Students (Visa): I got this card early on but I rarely use it ever.  For whatever reason, they gave me an abnormally large $4000 credit limit which was convenient for booking plane tickets and buying summer storage.  However, in terms of rewards, I have to say that it is the most disappointing out of all the cards I've had so far.  There was a nice bonus for signing up and switching to e-statements, but the rewards system they use is called Thank You points and almost any reward will be less than a 1% return.  Right now, I just leave it at home instead of carrying it in my wallet.

*** Capital One Cash Rewards (Visa): I got this card within the past year and it has been great.  It does a basic 1% cash back on purchases and 2% cash-back on dining, book stores, telecom, and entertainment.  I'm not sure how it picks the categories because I believe if you look at their site right now, it will say that the 2% is for gas stations and groceries.  Overall, the yield is a little low but it's a good standard card.  Redeeming cash-back is also simple without any minimum amounts (like you don't need to get $25 cash-back before you are able to use it.  Regardless, I usually use my Capital One when I don't have a revolving 5% cash-back available on Discover or the next card I will show.

***** Chase Freedom (Visa): Chase is the most recent card I have received and it does something similar with Discover in that it has a revolving 5% cash-back and basic 1% cash-back on normal purchases.  It comes with a nice sign-up bonus (mine was $50 after the first purchase) and they have some interesting features such as full-pay where they will tell you your total spending in certain categories so that you can pay those off and avoid paying interest on it.  I got the feature even though I never use it since I pay off the bill in full every month, which is again what I recommend to anyone who gets a card.  And Chase Freedom is definitely a card I would recommend to anyone who has a decent credit history since the Visa network makes it more widely accepted than Discover.  Currently, I believe they have an offer for $150 cash-back after $500 in purchases within 3 months of getting your card.  If you are buying a round-trip ticket from school to home over the summer, that alone could satisfy the minimum and get you 30% back on that $500.

The first two are student cards so if you are starting out to build your credit history, I would recommend getting those first.  I actually got a co-signed credit card before my Discover which may have helped me get all the cards I have now by having some credit history instead of no credit history.  If you are not looking for a student credit card, I would definitely recommend Capital One and Chase.  By keeping track of the categories with the most cash-back, I have accumulated a couple hundred dollars worth of gift cards or cash-back over the past two years.  I have seen some other promising cards like the American Express Blue Cash Everyday which gives more cash-back all year round in certain categories (but beware of its acceptance) so it may be good to shop around.  If anyone knows a no annual fee, cash-back card that I haven't mentioned that may be useful to look into, I would appreciate hearing about it in a comment.

Overall, credit cards can be a great way to build up your credit and earn some free money.  It is important to remember to fully pay your bill by the end of the grace period each month, but as long as you do so, you should be able to earn a decent sum over the course of a year.  Not to mention the convenience of just swiping a card instead of getting out cash regularly as well as the ease of paying bills online nowadays, a credit card is a handy tool if used correctly.  I haven't placed links to the credit cards I mentioned since I don't want it to seem like I personally endorse them or that I get some sort of referral bonus.  They are easily searchable on Google but I am happy to help if anyone has any trouble finding a card I mentioned here.

This ends my short series on credit cards.  I haven't quite decided what the next topic will be about but I may ask my friends for some recommendations.  Feel free to comment if any current readers have a preference, although I won't expect any since this blog is so new.

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