Thursday, July 2, 2009

Making credit cards work for you

OK, as promised (this seems to be turning into a whole series of financial posts), more on the whole credit card thing. This is something that I am a little hesitant to get into, because there are a lot of variables involved in picking a credit card, and it really depends on what your priorities are. The main criteria for credit cards are interest rate, annual fee, and rewards program.

For us, since we do not leave balances on our credit cards, I hardly pay attention to the interest rates, though I did obviously review all of our cards and choose the one with the lowest interest rate to charge my surgery to. If you are looking for a credit card and you are planning to leave a balance on it, then the interest rate is the most important thing, and the rewards program comes second. You can often find cards with introductory offers of 0% interest, so if you know you only need to carry a balance for a short, defined period of time, those can be very helpful.

So, basically, I won't get a card with an annual fee, because it negates the rewards, as far as I'm concerned. And there are a lot of great reward programs on cards that don't charge annual fees. The best way to find these cards is Google. Each credit card website (CitiCards, Chase, American Express, etc.) has a section where you can see the different offers, but there are also a lot of blogs and independent websites that compare the pros and cons of different cards. Most cards offer a basic 1% back on all purchases, and then a lot of them have very specific things that they offer bonus rewards for.

As a result, we have a ton of different credit cards and we have it memorized which cards we use for what. Also, sometimes the cards offer bonus rewards for a set period of time, such as six months or a year (this seems especially common with groceries), so when that period of time ends, we apply for a new card with a different reward program. Right now we are on our third, and best, grocery rewards card. The first two offered us 5% back on groceries and pharmacies, one for six months and one for a year (this was one and this was the other). The current one offers us 6% back on those things, plus 6% back on gas, plus a penny per mile you drive (you send in your car's service records), for a year. After that, we will look for a new card. The card is the Citi Driver's Edge.

We also have a card that gives us 3% back on restaurant purchases, the Citi Professional, but it seems to have changed since then, and now is only allowed for business use, and only gives 3% back for the first year? In any case, this is all I could find.

And we have a credit card that gives us 3% back on all purchases made directly from And there's an American Express card that gives you 2% back on purchases from Costco. And the list goes on. My point is, you should be making the most out of your credit cards. It just doesn't make sense to have a credit card that doesn't give you any benefit, whether it's a really low interest rate, a great rewards program, or both. As long as you use your credit cards wisely and don't overspend or get into unnecessary debt, rewards programs are a great way to earn a little bit of your money back.

Another thing you want to pay attention to is what you can do with the rewards. We had another Amazon card that sent us gift cards to Amazon. The current one has more flexibility... we can get gift cards to a number of places, Amazon included, or we can get cash, or we can buy plane tickets. Our gas and groceries card rewards can be put toward the cost of car maintenance or repair or the purchase of a new (or used) car, or they can be transferred to the ThankYou network, which allows you to use points to purchase any number of things, from various giftie items to gift cards to plane tickets. The ThankYou network, though I've heard rumors that the points may become less valuable soon, is great for travel because it's hooked up to Expedia--you just search Expedia through ThankYou and it shows you the prices in points instead of dollars.

Update: A nice anonymous commenter (don't you like it when the anons are nice?) mentions something that should definitely be pointed out: applying for credit cards temporarily lowers your credit score. It can be good for you in the long term because it increases the amount of available credit you have (and are presumably not using all of), but when you have inquiries on your credit history, your credit score temporarily goes down. So if you have a reason why you need your credit score to be good in the near future (i.e., you're about to apply for a loan), then you shouldn't apply for any new credit cards.

Again, the main thing is to do your research. Make sure you're not committing to a high annual fee, make sure you're not going to wind up paying more in interest and finance charges than you get back through rewards, make sure you are the type of person who can handle and keep track of credit cards... and assuming all these things are true, do your research and find the cards that will do the most for you.


  1. Again, thank you! I am looking to get my first credit card and this is really helpful.

  2. This is really interesting! One thing I think you should mention is that opening lots of credit cards has an impact on your credit rating--even if you use them infrequently or pay them off every month.

    On the one hand, it can raise the total amount of credit you're extended (which is good for your credit rating, in that the rating considers the % of available credit you're using) but it can also be bad because the number of creditors and inquiries on your credit report goes up, which lowers your rating. When I applied for a mortgage, the lender told me to NOT apply for any credit cards, even the "oh you get 10% off your purchase today if you open a store account" because I was on the cusp between good/great credit.

  3. I've found, too, that sometimes a credit card will waive the annual fee. All I had to do was call (well, okay, I hate the phone so I WROTE, but my dad just calls when he does this) and ask them to, and they did. So if you find a super-awesome card with a bad fee, it's worth checking into.

  4. along anon's line (hooray for nice and respectful anonymouses!!), isn't it also true that the volume of open cards can sometimes work against you, even if you're paying them all off? i'm a little unclear on the payoffs/rewards on that, since i know the whole "available credit" is what helps increase your score, but i was also told my one of the credit monitoring firms that you should always close all unused cards (like old victoria's secrets cards, or bloomingdale's cards, etc) even if they're carrying a $0 balance and are dormant, because just having "too many" open cards can be bad for you. they neglected to tell me how many "too many" was, of course :-P

    this is all so interesting! i love discussions like these.

  5. I want to echo Anon's sentiments precisely ... that having some credit cards (with low or nor balances) establishes credit worthiness, but many cards or cards with high balances will chip away at your credit rating.

    As you said, Jess, credit cards are a complicated beast. Thanks for trying to simplify as much as possible!

  6. While bonuses are great (we have a 3% on gas and 1% on everything else, and one that gives us 1% on our insurance), I agree with others that opening a bunch of short-term cards isn't always the best idea. When your credit is determined, they look at the total amount of debt you COULD go into. So if you have 50k of credit lines, they look at you as if you could have 50k of debt, even if you have none.

    Credit card history is really important, so having a few cards with reasonable credit limits that have been open a long time with 100% on-time payments are the most advantageous for your credit score.

  7. You know what I would like, is if they made credit cards like STARBUCKS CARDS, ie let you design them yourself and include kicky pictures of your kids or a picture of a homeless guy or whatever you need to see to stay in line when you're whipping that sucker out.

  8. Ok, and to contradict Alice, I was told that you're NEVER EVER supposed to close a credit account. Keep a dormant card open and try to use it occasionally, but pay it off when you get the bill.
    On the same lines as anonymous, I have found that any credit inquiry, whether it is applying for cards or trying to get a copy of your own credit report, will affect your score. I just think that's awful, btw - you can't look at your own score to see how you're doing because it will affect your credit score. No fair.

  9. The key to this whole thing is paying them off every month. We have one credit card that we use for gas purchases, then pay it off monthly, just to keep our credit score healthy. Every few months they raise our credit limit and we call to have it set back to $2,000. My husband is an impulsive guy and would carelessly charge something we couldn't pay off, which would drive me crazy.