I recently got an email from a reader of Free Money Finance who had this to say:
I just recently came across your blog, and it's very interesting. I'm a fan of finance and building net worth as well, and it seems our philosophies are generally in line. I saw your post about Amex Blue Cash and the Subaru Platinum Mastercard as being your go-to cards, and it reminded me of an email I wrote last month (below). I was going to send it to my family, but I sent it to my Dad first to see if he thought family members would be offended (apparently the older generation doesn't talk about money at al l-- I'm 28), and he nixed it so it was never sent out. I will, however, share it with you. Let me know what you think about my choices (and my reasoning)...
I liked his thoughts/thinking and asked if I could reprint it here and ask my readers to comment on it. He said, "go for it," so here it is -- his letter to his family:
Hey folks-- just wanted to share some of the research I've done on credit card rewards. Recently I realized that I haven't been taking advantage of all the great reward programs that are out there, remaining satisfied with getting just 1% back, which isn't bad at all, but isn't as good as I could have been doing. So I went online and did a lot of research to see what kind of offers are out there, and I've found a lot of interesting deals. To keep you from having to duplicate my efforts, I've taken the time to lay out the best ones I could dig up.
First of all, let me tell you what I was looking for. I've learned lessons in the past about cards that offer "points" for purchases which you can redeem for gifts, often at inflated prices, and often for things that you don't want or need. I wanted cards that used percentages to determine their rewards-- actual cash percentages back-- and ones that actually cut you a check for the cash that you accrue that you can take to the bank-- literally. There were a lot of cards that sounded great in theory, but really weren't that great. This is not a surprise-- credit card issuers want to make their rewards programs sound good and offer you trash in return. But I saw through their web of lies, and kept my eyes on the prize: cash back.
I was a little surprised by the fact that no airline-sponsored credit cards made the cut. Most of them offered a flat 1% cash back for purchases, with maybe the exception of purchases made with their airline, which were usually loaded with exceptions. Besides, in my trips from Maryland to Dallas, I've used American, Air Tran, ATA, United, and Continental-- whoever gave me the best price. Having an airline-related card didn't make sense for me, since that would lock me into using one particular airline, and it might force me to redeem my reward at full-price meaning that I'd have to build up more points than normal to redeem it for a ticket-- 25,000 points was a standard baseline for a ticket within the same "zone," but since Maryland and Dallas aren't in the same zones, my point cutoff was usually 30,000 points-- equivalent to $300 if it were a cash-back card. I can find a ticket for less than $300...
Other things of note... I disqualified any card that has an annual fee, or cards that had no annual fee for a year before it kicked in-- no annual fees AT ALL on the cards I recommend below. And while promotional offers help, I tried to ignore immediate benefits and gave more weight to post-promotional period benefits. I also paid no attention to the interest rates offered for the cards-- I pay off my charges every month, so I'm not concerned with interest rates, just rewards. One more note: I had no preference between Visa, Mastercard, American Express, or Discover-- I treated them all as the same and just paid attention to their rewards.
So without further ado, I'll give you the names of the cards, a link to one of the credit card research sites that I used that has a good summary of the program (and which also has a link to the application page for the cards), and the highlights of the rewards programs. The top two: Citi Dividend Platinum Select Card and the BP Visa Rewards Card.
Citi Dividend Platinum Select Card
- Long-term benefits: Earn 2% on purchases made at supermarkets, drugstores, gas stations, convenience stores, and for utility bills (including cable and satellite tv). Earn 1% on all other purchases. I'm going to use this card for groceries, drugstore stuff (including prescriptions), non-BP/Amoco gas (see second card below), and all my utility bills. Utility bills for me here in Maryland are $200+ a month, so the extra one percent over the 1% that I currently get will add up quick...
- No promotional benefits.
- Downsides: $300 annual cash-back limit (although that equates to $30,000 spent at the 1% rate, so it's probably not a concern). Also, checks only come in $50 increments, so you have to accumulate at least $50 cash back to get a check-- therefore, make sure this can be a long-term card for you before you apply for it.
- Postscript (2/27/07): I've soured on the Citi card because BGE, my gas/electricity company for whom the card was primarily aimed, won't accept it, and the card doesn't have a Bill Pay system like I had with my old card. It will now just be my backup to the BP card, with only occasional use for groceries and drug/convenience stores.
BP Visa Rewards Card
- Long-term benefits: Earn 5% cash back on gas purchases from BP or Amoco stations, which is really nice for people like me with a BP station just a few blocks away... Earn a 2% rebate on purchases at dining establishments (non-fast-food), airlines, lodging facilities, and on car rentals; and a 1% rebate on all other purchases (except gas purchases at non-Bp or Amoco stations, for which you get no rewards, so use the other card for that). No annual restrictions on cash-back. I'm going to use this card for BP/Amoco gas, restaurants, airfare, hotels, and car rentals.
- Promotional benefits: Earn double rewards for the first 60 days: 10% cash back for gas purchases at BP/Amoco stations, 4% cash back for those travel-related and restaurant purchases, and 2% for everything else. I was going to wait to get this card until I knew I would be flying home so I'd get 4% off the airline ticket instead of just 2%, but the upside of that would be just $5 for a $250 round-trip ticket, so I'm getting it now instead.
- Downsides: Checks for the cash back come only in $25 increments, which is half as much as the other one, but it's still a restriction. But that's the only restriction I could find really.
- Postscript (2/27/07): This card is indeed truly awesome, and I've been using it for a full month now. This has long-term potential, as long as they don't change the benefits...
That's it, folks. If you want to use another card that gets more than 2% for some of those items, go for it, but I wanted to keep my total number of card in my wallet to just two--and, like I said, I didn't want to limit my rewards options, and these pay in cold, hard cash. If you feel comfortable with having more than two credit cards in your wallet and you get rewards that suit you better than the ones that I've found, then stick with what you've got. Also, keep in mind that these are just suggestions-- be sure to read the rewards details to ensure they will meet your needs. There are other rules and restrictions that may apply, so be such to do your research for these programs before applying for and using them. I don't want y'all to be taken by surprise on something...
Some other credit hints: Do NOT cancel your current lines of credit, especially your oldest. One of the ways that your credit rating is determined is by length of credit history, which is measured by your oldest line of credit. If you cancel your oldest line of credit, your credit score WILL go down. Another reason not to cancel your credit lines: your credit score will NOT necessarily be damaged by having a higher amount of available credit, and in fact, could be improved by it. One of the ways the credit score is calculated is by the ratio of how much credit currently in use and the amount of available credit, so the higher your credit limit, the lower that ratio will be (as long as spending levels are the same). However, if you have a tendency of using however much credit you have, then applying for more credit may not be the smartest thing to do. Your credit score WILL, however, take a temporary hit due to the inquiries into your credit history that will occur by these companies as a part of the credit card application process-- the score dip won't last very long, though, so it shouldn't be a concern unless you're planning on making a major purchase (car, house) in the next 3-4 months.
I hope this helps you out a little. I know talking about financial stuff is somewhat tricky, but I want to help those I care about (this includes YOU!), so if this is a way I can help, then I hope you take it in the spirit it was intended. Happy buying, all!
Personally, I use Blue Cash from American Express as it does quite well for me, but his rationale seems good to me. So what do you think?
Spectacular Post!!! I too use the BP card exclusively. I always pay the balance in full and gladly except their $25 checks every month or two. If you don't mind I'd like to copy this post to send to some friends of mine.
Thanks!
Posted by: Eric G. | March 06, 2007 at 08:44 AM
Eric --
You can just email them the link. ;-)
Posted by: FMF | March 06, 2007 at 08:53 AM
Excellent idea FMF.
Maybe they'll even take the time to check out some of the other posts. Well done.
Posted by: Eric G. | March 06, 2007 at 03:08 PM