There are so so many credit cards available on the market. It can be hard to wrap your head around all of the various types of cards that are out there. If your credit is halfway decent – and many times even if it isn’t – you may find that credit card offers in the mail make up the largest percentage of all the mail that you receive. How to tell these cards apart? I would group credit cards into the following buckets:
Introductory Credit Card
This credit card, such as the Capital One Platinum, is aimed at new credit card owners such as young adults or students. These typically have very low reward offers, sometimes not offering any rewards, but they do have more lenient credit approval criteria. The purpose of these cards is to hook customers who may not yet qualify for better rewards cards, helping them take the first step on their credit building journey.
Low-Credit (predatory) Credit Card
These are the “subprime” of credit cards if you will. Vendors such as Credit One sometimes offer cards aimed at lower creditworthy customers. You may find that these cards come with low limits, annual fees, and low or non-existent rewards. They may be useful for helping to rebuild credit if you have an impaired credit profile. However, in this case, we might recommend looking into secured credit cards as well, which are credit cards backed by money that you deposit. This would be a cheaper way to have a credit card in a low credit situation.
Balance Transfer Credit Card
These cards, such as the BOFA Balance Transfer Card, can actually be very useful. They are called balance transfer cards because they are designed for you to take a balance off a credit card that currently charges interest, and move it over to a card with a free interest period. These cards offer sometimes 12 or 18 months of free interest, letting you rack up the balance and pay only the monthly minimum without having to pay any interest fees. If you correctly, this can work out to be a free one year loan. The catch? Once the balance is on the card, many people are not able to pay the full balance back once the interest kicks in. This means you go from 0% interest to 18% or higher literally overnight. Make sure not to use this card to spend beyond your means. But if you are careful, this can be a very useful card for reducing your overall interest costs.
Annual Fee Reward Cards
These cards typically offer perks beyond what the normal credit cards will offer. Whereas the low-credit cards charge an annual fee because of the credit risk, these cards are generally aimed at higher-income consumers who are willing to pay an annual fee in order to have access to the greatest perks. The most famous example of this card is probably the American Express Black or Centurion Card. This card requires a $5,000 annual fee, but for those who know their way around the perks, it can be worthwhile. What do you get for your 50 Ben Franklins annually?
- $200 Annual air travel credit
- Access to airport lounges
- Global entry fee credit
- Elevated hotel membership status
- Platinum Medallion status with Delta-
- Rental car benefits
- Exclusive experiences
But perhaps the best perk is the bragging right from owning such an elusive high-status credit card. If you can pay $5,000 for a credit card, that puts you into rarefied territory. But there are a number of credit cards that fall into this category, offering extra perks and rewards, at a lower cost. The Chase Sapphire, Marriott Bonvoy, and Alaska Air Credit Card are examples of cards that offer perks like travel rewards, free hotel nights, and free checked luggage, helping to justify the annual fee that you have to pay to own the card.
This is your meat and potatoes credit card. No annual fee, just a percentage back on your purchase, typically between 1-2%. The average these days is probably 1%-1.5%. Quite a number of cards will offer headlines of 5% cash back, such as the Discover IT card, but this only applies for certain product categories, plus with a monthly or annual cap. The credit card with the highest reward percentage across all purchase categories is the Alliant Signature Card, at 2.5% cash back. There are caveats however, such as a $10,000 monthly purchase limit for rewards, and a $99 annual fee. If you are dedicated to putting the bulk of your spend on this card, it can certainly pay for itself. However, that brings us to the best rewards credit card that is available right now.
The Best Overall Rewards Card in 2020
There is only one card that offers a true 2% cash back across all categories and no limits, and without an annual fee. This card is the Citi Double Cash card. This is the card that I personally carry and use more than any other card. How does it work? When you spend, you earn 1% right away. When you pay off that balance, they give you another 1%, adding up to 2% overall. If you are being responsible and making full payments every month, then this effectively works out to be an unlimited 2% cash back credit card. No other card on the market is this generous as an overall cash-back card.
We hope this article has been helpful to you. Remember, pay off all your balances in full every month, or the credit card interest monster will get you. Stay safe out there, and happy spending!