There are thousands of credit cards out there. How do you pick one? Well that really depends on what your goals are. In this post, I am primarily going to focus on travel credit cards (keep in mind there are tons of cashback cards as well).
As a practical example, I am going to use the Chase Freedom which at a base level is a cashback card, but can be used for travel if you know the right tricks. You’ll see the examples in italics.
Things you should consider:
- Signup Bonus – Most credit cards come with some sort of bonus used to lure people in. I mean who wouldn’t want 50,000 miles for spending $3,000? Signup bonuses increase and decrease throughout the year. Obviously you want to get the signup bonus when it is at its highest.
- Chase Freedom example: You earn 15,000 Ultimate Rewards as a sign up bonus. 15,000 Ultimate Rewards can be used for statement credits for 1 cent per point (cpp). So you can look at it as $150 cashback. However, there are better uses for Ultimate Rewards, which I’ll talk about in a later post.
- Minimum Spending – This is the amount of purchases you need to put on your card to receive the sign up bonus. Be aware of the time frame that you have to complete the minimum spending. Typically you have 90 days/3 months to meet the minimum spending.
- Chase Freedom example: To earn the 15,000 Ultimate Rewards sign up bonus mentioned above, you have to make $500 worth of purchases on your card in the first three months.
- Category Bonuses – You’ll also want to know what types of bonuses a credit card gives for spending money on a certain category. See this post here for more information about category bonuses.
- Chase Freedom example: This card has rotating category bonuses. So every quarter you’ll get 5% (or 5 UR/$1 spent) back on a specific category. These categories can be things like: grocery stores, restaurants, online shopping, etc. Chase announces the different categories at the beginning of each year.
- Types of Miles/Points Earned – there’s no point in earning miles/points that you’ll never use. When signing up for a credit card, you should have a general understanding of the value and usefulness of miles/points that it earns.
- Chase Freedom example: This card is typically advertised as a cashback card, but it actually earns Chase Ultimate Rewards (UR). UR can be redeemed for cashback, but if you have the Chase Sapphire Preferred or Ink Plus you can transfer these UR to travel partners.
- Annual Fee – Some cards will waive the first year of the annual fee. Other cards have no annual fee. When looking at credit cards you want to make sure that the benefits and rewards you are getting are worth the annual fee. Don’t let a high annual fee scare you away from a card though. Lots of times the additional benefits help offset the annual fee. If you do have a card with no annual fee, you should never cancel it since it will continue to help build your credit and cost you nothing.
- Chase Freedom example: This card has no annual fee. It is actually one of the best no annual fee cards out there in my opinion.
- Annual Bonus – Speaking of annual fees, many cards give annual bonuses as well. These range from annual points/miles to free hotel nights. These annual bonus/perks can sometimes make up for the cost of the annual fee.
- Chase Freedom example: No annual bonus here, but remember there’s no annual fee either.
- Travel Benefits – Some cards provide additional benefits like lounge access, free checked bags, airline fee reimbursements, trip delay insurance, etc. If you are a frequent flyer, these travel benefits can make travelling a little bit more enjoyable.
- Chase Freedom example: The card provides Auto Rental Collision Damage Waiver, which is basically secondary coverage for rental cars. If you are using this benefit, you should probably still get insurance through the auto rental company.
- Other Benefits – Many cards offer price protection or extended warranty on items that you buy with your card.
- Chase Freedom example: This card provides purchase protection, extended warranty, and price protection. The only one I’ve utilized is price protection, which basically reimburses you for the difference in price on products you buy with the credit card. So if you buy an item and two weeks later the price drops by $100, you can submit a claim to get reimbursed the difference between what you paid and the new sales price. Read the fine print though because some sales are not eligible.
Things you shouldn’t consider:
- Annual Percentage Rate (APR) – APR refers to the interest charged if you don’t pay off your balance in full. Since you’re going to be paying off the card in full every month you shouldn’t be concerned what the APR is.
- Balance Transfer Rate – unless your cycling 0% cards, you shouldn’t be transferring a balance in travel hacking.
Other Things to Keep in Mind
- Banks have Rules – credit cards are issued by a variety of different banks (i.e. Chase, Citibank, American Express). Each of these banks has different rules when it comes to credit card applications. You need to learn the rules before you start applying for credit cards. Failure to know and understand the rules can result in credit card denials. A perfect example is the Chase 5/24 rule.
- Credit Scores are Important – in order to get approved for credit cards you have to have a good credit score. I am not an expert in credit scores, but throughout my research and time in travel hacking I have learned the basic factors that can raise or lower my credit score. Be sure to understand how apply for a credit card will affect your credit score.
I realize this is a lot of information to take in. Picking a travel rewards credit card is difficult and takes a lot of research. Here are some questions to ask yourself:
- What are my travel goals?
- What points/miles do I need to accomplish my travel goals?
- Can I meet the minimum spending to receive the sign up bonus?
- What benefits do I want in a card?
- Will I keep the card after the annual fee hits?
- Based on the banks’ rules, am I eligible for the card?
These are just a few of the many questions you should ask before applying for a credit card. Still not sure what card is right for you? Feel free to leave a comment. I love helping people figure out what credit cards they should consider.