A Beginner's Guide to Choosing the Right Card
With so many credit cards out there, how do you know which card is right for you?
Whether you’re looking at your first credit card or your tenth credit card, you want to make sure that it is the right card for you AND your travel or financial plans. This article will go over some basic tips that you should incorporate into your research before you apply for your next credit card.
What’s Your Credit Score?
Knowing your credit score is important for credit cards because it's a measure of your creditworthiness, and credit card companies use it to determine your approval, interest rate, and credit limit. A higher credit score indicates responsible credit use, while a lower credit score may result in less favorable terms or even denial of credit.
If your credit score is low or your credit history is newer, there are starter or even credit building options to look into. Ensure you know what’s keeping your score low and address that first.
What do I recommend to track your credit? I personally use Experian. I’m not an affiliate with them but I think they’re very accurate compared to others. There is a 100% free version that I use.
Know Your 5/24 Status
The “5/24 status” is an unofficial rule that only applies to you when you’re considering applying for Chase or Chase co-branded cards. This rule/status looks at how many cards you have in a 24 month period (which is the second number). The first number determined by the number of personal credit cards that you have been approved for within that last 24 months. Being added as an authorized user also adds to this number.
While your “5/24” status only applies while you’re looking to apply for Chase cards, being approved for ANY personal card from other banks such as American Express, Wells Fargo, Bank of America, Citi, etc., all count towards that first number.
Why is this important? If you’re at or above 5/24, you will NOT be approved for a Chase card no matter how you credit or income.
Example 1
If you have applied for 4 cards within the last 24 months but were only approved for 3 cards, you’re currently at 3/24. Again, only approvals count, denials do not.
Example 2
If you have applied for 4 cards in the last 24 months and were approved for 4 cards AND you were added as an authorized user to someone’s card, then you’re at 5/24.
Example 3
If you have applied for 4 cards in the last 24 months and were approved for 4 cards BUT one of them was a business card, you’re currently at 3/24.
*Business cards from SOME banks will add to your 5/24 status so keep that in mind
Don’t Start With Co-Branded Cards
There are a few types of cards out there. Two categories you should be aware of are co-branded cards and non-cobranded cards. Below are two cards that are both issued by Chase. The World of Hyatt card, is a co-branded card with the Hyatt brand but is issued by Chase. The Chase Sapphire Preferred is a Chase card that is issued by Chase without any additional co-brands.
Starting with non-cobranded cards gives you flexibility. Flexibility is a major key to being successful when it comes to using your points for travel. Co-branded cards reward you with points that can ONLY be used with that brand. For example, the World of Hyatt card earns Hyatt points which can only be used with Hyatt and can not be transferred to other partners.
Non-cobranded cards such as the Chase Sapphire Preferred, gives you the flexibility to transfer your points to a number of different partners. These partners can include airlines and hotels. For example, the Chase Sapphire Preferred allows you to transfer your Chase Ultimate Reward points to about 14 different partners such as Southwest Airlines, World of Hyatt, United, IHG, and more.
What I’m saying: Start with cards that give you flexible and transferrable points such as Chase Ultimate Reward points and American Express Membership Reward points.
What I’m not saying: Stay away from co-branded cards forever.
Save the co-branded cards for a little down the road once you’ve got a good foundation of flexible points.
Get the Best Sign-Up Bonus
Sign up bonuses are the number one thing that people like us are going after. This is how you rack up a huge amount of points in the shortest amount of time possible. However, not all sign up bonuses are equal. Let’s break this down into a few sections
Understand the Terms
Sign up bonuses come with very strict terms. You MUST complete a certain amount of spend within a certain amount of time. These terms can be found on the credit card’s page before you apply for that card.
The timer for when you need to complete the spend by starts when you are APPROVED for the card and NOT when you get the card or make your first purchase.
The amount of spend must not be pending but actually be posted to the account by the end date of the terms. Any pending charges that do not post by the required date may cause you to lose your sign up bonus.
Quantity vs. Value
Not all points are valued at the same dollar amount. With the plethora of credit cards and credit card points out there, there are different values associated with each points system. You may see cards that offer 100,000 even 150,000+ points and think “wow that’s a great offer!”. However, you need to do the math to see which offer is actually better when comparing them by dollar value.
Example
Hilton credit cards are known to offer some really high sign up bonuses. At the time of writing this, the Hilton Honors American Express Business Card has a sign up bonus of 165,000 Hilton Honors points. Comparing that card to another co-branded hotel card like the World of Hyatt Business card, which only has a sign up bonus of 60,000 Hyatt points, one would assume that you’re getting more than 2x in value if you’re getting the Hilton Honors American Express Business Card.
But wait! Hilton Honor points are generally valued at about 0.5 cents per point (cpp). This means that the 165,000 Hilton Honor points are worth about $825 when redeemed for hotel stays.
World of Hyatt points are worth at least 1.5 cents per point (cpp). This means that the 60,000 Hyatt points are worth at least $900 when redeemed for hotel stays.
Although, the Hilton Honors American Express Business Card offers over 2x the amount of points, you’re not getting the same value even when the World of Hyatt Business card offers a much lower sign up bonus.
Make sure that you are crunching the numbers and getting the BEST sign up bonus out there in terms of value and you’re not falling for common tricks such as a flashy high number.
Different Links
When it comes to signing up for a credit card, you have a few different options. In person, you can apply at a bank, over the phone, or even the old mail in method. When it comes to applying for a credit card online, you have even more options. In terms of sign up links online, you can find affiliate links (like ours), public links directly on the bank’s website, links on online advertising from that bank, referral links from friends/family, emailed links, and more.
In general, most credit card offers will be the same across these links. However, that is not always the case and you need to be vigilant on whether you’re getting the best deal or not.
Example
Chase recently had a 90K sign up bonus for their Chase Ink Business Cash and their Chase Ink Business Unlimited cards. This 90K offer was available via affiliate links as well as public links. However, referrals from friends or family would only give you 75K even though it’s the exact same card.
American Express Example
American Express is notorious for having many links for the same card floating around. Some high points offers are advertised and some aren’t advertised and people just come across the higher offers by chance. American Express has a “Once in a lifetime rule”, which says that if you have gotten a sign up bonus for this specific card before, you’re ineligible to get another sign up bonus for it again.
A few months back, I was in the market for an American Express Business Platinum card. Looking at the American Express website and links from affiliate programs, I could only find an offer for 120,000 Membership Reward points. While that is not a bad deal at all, I was able to look around and find a link that gave me 170,000 bonus points instead.
That’s an extra 50,000 points that I almost left on the table. At a minimum of 2 cents per point (cpp) that is at least $1,000 in value that I almost didn’t get.
Annual Fees
Let’s talk annual fees. Annual fees are the number one thing I get asked about when I tell people about the credit card game. There are a few things to keep in mind in terms of annual fees and your next card.
Budgeting
Choose credit card with annual fees within your means. It doesn’t make sense to go into debt with a card that comes with an annual fee of $695 to earn some points. There are a wide range of annual fees when it comes to credit cards. A lot of them are no annual fee or even low annual fee at $100 or less. Do the math and choose a card that fits your budget but also comes with enough points and benefits to make it worth your time.
What I’m saying: Do the math and see if you can at least break even with the sign up bonus and card benefits.
What I’m NOT saying: Avoid annual fees.
High vs. Low Annual Fees
Annual fees are not the bad guys. Most of the time, annual fees are 100% worth it, because you’re earning the sign up bonus, which usually exceeds the cost of the annual fee. In addition to this, many credit cards will have similar cards within the same family but with varying annual fees and card benefits. For example, the Chase Sapphire Preferred and the Chase Sapphire Reserve. These are both “Sapphire” cards but vary quite a bit.
The Chase Sapphire Preferred currently comes with a $95 annual fee while the Chase Sapphire Reserve comes with a $550 annual fee. At the time of writing of this article, both cards have a 60,000 Bonus Points sign up bonus. From this alone, it would be a no brainer to go with the lower $95 annual fee, Chase Sapphire Preferred.
However, you need to look past the sign up bonus and take a look at the perks and benefits of each card since these additional benefits can bring much more value.
The Chase Sapphire Preferred is pretty bare bones when compared to the Chase Sapphire Reserve. The Reserve provides $300 in annual travel credits, Priority Pass Membership, up to $100 in Global Entry or TSA PreCheck credits every 4 years, and more. The Chase Sapphire Reserve gives you AT LEAST $400 in additional benefits on top of your sign up bonus your first year and at least $300 in value from the travel credits annually.
If you can afford the higher annual fee and can take advantage of the additional slew of benefits from the Chase Sapphire Reserve, then the Chase Sapphire Reserve might be better for you.
Bottom line: Calculate and analyze the card benefits when considering annual fees.
Know Your Options
Another common concern people have is after they’ve had the card for the first year and have earned the highly lucrative sign up bonus, what do they do now?
Option 1 - Continue to Pay
Once year two starts and you get charged the annual fee again, you can choose to keep the card and continue to pay the annual fee. This is a good option IF you can at least break even in terms of card benefits versus the annual fee.
For example, the World of Hyatt Card has a $95 annual fee. But it gives me a Free Night Award that I can use at a Category 1-4 property anywhere. A night at a Category 4 property can range from $200 to even $300 or more. This is a case of where I would get much more out of the card than what I’m paying in terms of annual fee. The only thing is that I need to use that Free Night Award before it expires.
Option 2 - Downgrade
Some cards have a “downgrade path”. This means that you can product change your card to a different card that is issued by the same bank with a lower or even no annual fee option.
The Chase Sapphire Reserve has a hefty $550 annual fee. Sometimes life happens and you can’t justify or afford $550 in credit card annual fees anymore and you’re no longer breaking even on that card. You can downgrade the Chase Sapphire Reserve to the lower fee Chase Sapphire Reserve or even a no fee Chase Freedom Flex.
Not all cards have downgrade paths so keep that in mind. Also, you can only product change, downgrade, or cancel your card once your first year is up.
Option 3 - Cancel
If you no longer benefit from a card and can’t break even on the annual fee AND there are no downgrade paths or no no annual fee options, then it is time to cancel that card. Just like downgrading, you can do this by calling the bank with the number on the back of your card. It’s a very simple process.
Note: You should not cancel your oldest card since that can greatly impact your credit score, even if you don’t use it often. Use it once or twice a year to keep it open. Banks can involuntarily close your inactive accounts.
Option 4 - Retention Offer
A retention offer is an incentive provided by the credit card company to retain customers who are considering closing their card. You may receive a retention offer when you call in to cancel your credit card but it is not always guaranteed.
Retention offers are usually given out by their “retention specialists” or “account managers”. These offers can come in varying shapes and sizes. Sometimes you can be given points or statement credits outright. Other times you may be given an offer where you need to spend a certain amount of money in a given amount of time to get a certain amount of statement credit or points.
It is ALWAYS worth asking for a retention offer if you’re calling in to cancel a card. Read our full Retention Offer Guide Here.
Ask For Help
Are you overwhelmed with the sea of credit card options available on the market? Do you want to make sure you're choosing the right card for your lifestyle and financial goals? Look no further than our credit card consulting services. We offer both a free and paid service.
We have extensive knowledge of the credit card industry and can provide personalized recommendations based on your unique needs. We'll take the time to understand your spending habits, credit score, and financial goals to help you choose a card that not only earns you rewards but also saves you money.
We'll also guide you through the application process, making sure you understand the terms and conditions of the card before you sign up. And if you ever have any questions or concerns, our team is always here to provide ongoing support.
Don't let the stress of choosing a credit card hold you back. Let our experts help you make an informed decision and start reaping the benefits of a credit card that's tailored to your needs. Contact us today to get started.
Great Starter Cards
