Credit cards

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According to The Bogleheads' Guide to Investing, the financially sound use of credit and debit cards takes advantage of the convenience such cards can provide, as long as one always pays the balance due each month, avoiding interest charges. [1] Some credit cards provide programs that rebate a percentage of purchases back to the cardholder.

Types of Credit Cards

Credit cards can be obtained by using secured or unsecured debt agreements. Secured credit cards are designed for individuals with bad or no credit history, and require the individual to pre-pay for purchases made on the card, while also charging a monthly or annual fee to use the card. Secured credit cards typically do not come with rewards of any type. Unsecured credit cards are designed for individuals with low debt-to-income ratios and a positive credit history. Unsecured credit cards can have a variety of rewards associated with them.

Credit card rewards fall into three broad categorizations, cards that earn "miles", cards that earn "points", and cards that earn cash back.

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These tables are intended as examples to show the variations among card issuers. They are not recommendations. Read all of the Terms and Conditions in the card issuer's agreement, as exceptions can be subtle and potentially influence a decision.

Cash back credit cards

These cards return high rates of cash back to their holders, whether in all purchase categories ("Everything" in the table below) or in specific categories. Many also offer one-time sign-up bonuses, such as $100 cash back when the user spends $1,000 in the first three months as a cardholder. NerdWallet has a frequently updated database of credit cards, and offers tools to estimate cash back rewards based on individual spending patterns.

Gas and grocery cards

Name Issuers Annual Fee Cash Back Categories Notes
Gas
Groceries
Restaurants
Entertainment
Airlines
Hotels
Everything
Blue Cash Preferred

American Express

$75

3% 6% 1%
  • Also gives 3% on Department Stores
Blue Cash Everyday

American Express

2% 3% 1%
  • Also gives 2% on Department Stores
Visa Platinum Cash Rewards

PenFed

5% 0.25%
  • Cash is automatically credited each month
  • No limits on cash back
Sallie Mae Mastercard

Mastercard

5% 5%
  • 5% Cash Back on the first $250/mo Gas & Groceries
  • 5% Cash Back on the first $750/mo Bookstore/Amazon
"—" Denotes that there are no bonuses beyond Everything.

Everything else

Name Issuers Annual Fee Cash Back Categories Notes
Gas
Groceries
Restaurants
Entertainment
Airlines
Hotels
Everything
Fidelity Rewards American Express

FIA/Bank of America

2%
  • Must open a Fidelity Account, or redeem by check in $250 increments, for full 2% redemption rate
Capital One Venture Visa

Capital One Bank

$59

2%
  • Must use cash back against travel expenses for full 2% redemption
  • No foreign transaction fee
Priceline Rewards Visa

Barclays

2%
  • 5% back on "name your price" priceline purchases
  • Redemption by selecting specific charges to credit points against
Citi Double Cash

Citi Bank

2%
  • 1% cashback on everything.
  • 1% more cashback when you pay.
  • Redeem at $25 or more.
Fidelity Rewards Visa

FIA/Bank of America

1.5%
  • Must open a Fidelity Account for maximum lower tier redemptions
  • 2% on purchases above $15,000
NGFCU Cash Rebates Mastercard

Northrop Grumman

1.5%
  • No foreign transaction fee
Capital One Quicksilver

Capital One Bank

1.5%
  • 1.5% cashback on everything, no cap
  • Can redeem at any amount, no minimums.
  • Currently (12/11/2014) there is a $100 cash bonus if you spend $500 within the first 3 months.
"—" Denotes that there are no bonuses beyond Everything.

Rotating cash back categories

Several card issuers offer cash back cards whose categories rotate periodically. For example, Discover More offers 5% cash back on categories which vary as follows:[2]

  • January through March: Travel and Restaurants
  • April through June: Home and Fashion
  • June: Grocery and Drug Stores
  • July through September: Gas, Hotels, Movies and Theme Parks
  • October through December: Restaurants and Fashion
Name Annual Fee 5% Cash Back Calendar Notes
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
NOV
DEC
Discover More

Travel, Restaurants Home, Fashion Home, Fashion, Grocery, Drug Stores Gas, Hotels, Movies, Theme Parks Restaurants, Fashion
  • Only gives .25% on the first $3000, and 1% after in "Everything" categories
Chase Freedom

Grocery, Drug Stores Home Furnishing, Home Improvement, Lawn and Garden Gas, Hotels, Airlines Dining, Department Stores, Movies, Charity

Point earning credit cards

Some credit cards offer points earned for each dollar spent on the card. Point cards are somewhat easier to compare to cash back cards due to the cash back exchange rate, which is typically $0.01/point. Many point cards offer access to unique opportunities, such as discounted partner products or exclusive events. These vary significantly by issuer so the prospective card holder must judge how valuable these are.

Name Issuers Annual Fee Cash Back Categories Notes
Gas
Groceries
Restaurants
Entertainment
Airlines
Hotels
Everything
Chase Sapphire Preferred

JPM Chase Bank

$95

2% 2% 1%
  • 2% back on travel expenses, including airfare
  • No Foreign Transaction Fee
Barclaycard Arrival Plus World Elite

Mastercard

$89

2%
  • 2.2% back when used for travel expenses, including airfare
  • No Foreign Transaction Fee
USAA Cash Back

American Express

2% 2% 1%
  • 2% for military affiliates only, 1.5% otherwise
  • No reward cap

Mile earning credit cards

Some credit cards offer you miles for each dollar spent on the card. Miles vary dramatically in worth as most are redeemable only through select airlines, issuer-sponsored websites, or various mile-exchange programs for charities. Comparisons of mileage cards are exceptionally difficult as airfare prices vary dramatically and mile redemption rates are subject to blackout dates or airline exchange rate changes. The overall worth of any mileage credit card should be assessed by the individual based on their travel behavior, desired destinations, and preferred airline conglomerate. The following considerations should be prior to committing to a mileage credit card:

  • Airline-specific cards have significant benefits for frequent travelers of that airline, but limit any benefit outside of their conglomerate
  • Compare the purchase price of the ticket you want to the miles expended over time
  • Check the desired airline's preferences to determine how likely award fliers are to be booted in the event of an overbooked flight
  • Look at locations your target airline/conglomerate of choice services

Multiple credit cards

Many credit card users obtain cards from several issuers, then optimize their spending patterns to maximize the cash reward. For example, one might use the American Express Blue Cash Preferred card for all grocery purchases, and the Capital One Venture card for all other purchases. While using multiple credit cards is tempting, there are a number of considerations which may dissuade card holders from this approach:

  • The effort needed to track multiple cards is significant.[3]
  • Many cash back cards require a minimum amount of cash back to be earned before it can be redeemed. Using several cards, one will accumulate cash back more slowly on each card, and therefore it may take longer to actually earn a redeemable amount of cash back on any one card.
  • It's easy to forget a payment or lose a card. The fees, interest charges, and credit score impact of such an oversight can quickly ruin any savings you might have earned.[4]
  • Opening multiple credit card accounts can help your credit score, but this technique may backfire and lower your score as well.[4]
  • Card issuers often coordinate their cash back categories (similar categories during the same time period), which results in minimal benefit to using multiple rotating-category cards.[3][5]
  • Cash back categories have spending limits. Spreading purchases over several cards to avoid these limits is complex to track.

Just One Credit Card

Using just one credit card may not get you as many rewards, but is easier to do overall--you don't have to figure out which card to use where, nor deal with any of the other multi-card hassles (see Multiple Credit Cards above). If you do this, you should try to find a card with either no cap on the rewards you can earn, or a cap high enough that you won't hit it with your spending pattern.

Credit report

AnnualCreditReport.com, enable browser cookies

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. Many users request their credit report from only one of these three companies at a time; by rotating among the three companies, you can view your updated credit report every 4 months in this way.

AnnualCreditReport.com is a centralized service for consumers to request free annual credit reports. It was created by the three nationwide consumer credit reporting companies - Equifax, Experian and TransUnion - and is the only service authorized for this purpose.

A credit report includes information on where you live, how you pay your bills, and whether you've been sued, arrested, or filed for bankruptcy. Nationwide consumer reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.[6]

See also

References

  1. The Bogleheads' Guide to Investing Taylor Larimore (Author), Mel Lindauer (Author), Michael LeBoeuf (Author), John C. Bogle (Foreword), Wiley; 1 edition (January 3, 2006), pp.10-13.
  2. Discover cards. Note that there are dollar restrictions for each time period, e.g. $200 limit for groceries purchased in June.
  3. 3.0 3.1 Rotating 5% back categories for Credit Cards, forum discussion
  4. 4.0 4.1 How Many Credit Cards Should You Have?, from Investopedia
  5. Credit Card 5% Cash Back Rotating Categories: April to June 2011
  6. Your Rights: Credit Reporting, from the Federal Trade Commission

External links

Investopedia links

Bibliography