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How to Compare Credit Cards

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Credit CardsI like to approach the task of comparing credit cards from two angles. There are characteristics that I consider to be core to the card, the “meat and potatoes,” if you will. Then there are characteristics that are more ancillary or fleeting, the “icing.” (Please ignore the gross meatball sundae idea that results when you put icing on meat and potatoes) Finally, there are those characteristics that are irrelevant to you.

When you go to compare cards, it’s important that you also make those same distinctions.

Interest Rate APY

I almost never look at this characteristics because I don’t carry a balance but it should be the first number you look at if you do carry a balance. You need to review the terms & conditions of the card and read what the various interest rates are. For me, this falls into the “don’t care” pile but if you carry a balance, this should be the most important aspect about a card. That’s why you need to make your own distinctions about characteristics.

Fees

No one likes to think about fees but we all know they matter. I avoid annual fees whenever possible and I’ve never had a personal credit card with a fee. Unfortunately for many travel cards, this is unavoidable as those programs almost always institute a fee. You should be able to get the fee waived in the first year, that’s almost a standard offer, but they get you in that second year.

I’d also check late payment and other fees on the card, for those (hopefully) rare times you do miss a payment. If you travel a lot, consider getting a card with low or no foreign transaction fee.

Cashback Program

If you’re getting a reward card, carefully review the cashback program. I’m less a fan of the ones where there are rotating categories but sometimes that’s on top of a core set of categories. Either way, compare the reward program with your normal spending and see if you’ll come out ahead. If the program rewards you in points, check the catalog to see if it contains items you’ll actually want. Cash is always king but points are OK if you can convert them favorably.

Promotional Offers

Promotional offers should almost always be considered icing. If all other things are equal, the one with some new account holder promotion should win out. There are a lot of “$200 in cashback after you spend $1000″ promotions (or some variant of that) out there but after the promotion is paid out, only the card is left. I would also put 0% balance transfers and 0% on purchases into this promotional offer camp, though their promotion lasts a little longer than the “cashback after you spend XYZ” lot.

Those are just a handful of the things I look at when comparing credit cards, something I don’t do very often. I haven’t had a new credit card since opening an American Express TrueEarnings Costco card about five years ago. Once you find a couple you like, there’s really very little incentive to switch.

(Photo: sovietmole)

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5 Responses to “How to Compare Credit Cards”

  1. Sun says:

    > If the program rewards you in points

    The redemption tiers can sometimes be unfavorable. One of my cards require $15k spend to achieve 1:1 cash back. Otherwise, it is only 1/2 a cent per point.

  2. Prasad says:

    I think the answer depends on whether you carry a monthly balance on your credit cards or not.

    If someone carries monthly balances, this article is right on the money.

    But for those that simply payoff their balance in full every month, I think considering the rewards should certainly be at the top of the list.

  3. Bey says:

    I don’t have just a hammer in my toolbox, and I don’t have just one credit card in my wallet – in fact, the more the merrier. Some pay cash back for groceries, some for gas, and some pay airline or hotel points. I don’t obtain a card unless there’s a signup bonus, but after that honeymoon is over the card should still be useful enough to keep. One good example is my Discover card, which Jim wrote about this past January. 0% for 12 months with a 0% transfer fee, what a deal – but when that intro ends it will still have value. This card has rotating cash-back bonus categories, and I can use the cash rewards to buy occasional reward specials, apply them as a statement credit, or I can have the funds transferred directly to my checking account via ACH. Take Jim’s excellent advice and look for the “meat and potatoes” features and incentives that have value to you before applying for that next piece of plastic.

    • Sun says:

      Value of a card has diminishing returns the longer you get away from the sign-up bonuses. You tie up your overall permissible credit line by keeping the card. (There are ways around this, but I won’t mention that here.) Why keep the card, when the value of another new has greater value, especially with signup bonuses?

      • Bey says:

        Well, Sun, not everyone has the means to take advantage of multiple signup bonuses, due to income, credit score, or spend requirements. So I was agreeing with Jim that most people should make sure that the core benefits of the card should make it worth keeping after the signup incentives are realized. At the same time, I agree with you that some cards outlive their usefulness, in fact a few of mine with annual fees won’t be with me much longer.


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