The Keys to Getting the Best Reward Credit Card for You

Most of you know that I'm a big fan of the Blue Cash from American Express card (it earned me almost $500 last year) and use it as my main cash back credit card. But there are a lot of reward cards out there and I thought some of you might like to have some guidelines on how to find the best one for you. Here are my thoughts on the issue:

1. Decide what is most important to you. Everyone's different. Some people like cash (like me), others travel a lot and want airline points, and others have special interests in one area or another. This GREATLY impacts what reward credit card will be the best for you. So start the process of searching for your card by thinking through what reward you'd like to get.

2. Consider how you spend money. What you charge on your card can make a big difference in the reward you get. For instance, some cards give bigger rewards for spending at gas stations or grocery stores. If you charge very little at gas stations or grocery stores, it's likely these cards aren't for you. Review your budget or Quicken file and take note of the major purchases you charge to your current card.

3. Decide how much time and effort you're willing to put into maximizing your reward. It's highly likely that your absolute maximum reward will come from using a strategy that requires using multiple cards. But do you really want to deal with the hassle of getting, carrying and using a boatload of cards? Personally, I don't, so I carry two -- a main card and a back-up used in certain situations. You may be willing to deal with the hassle of using many cards, but you certainly need to consider the "hassle factor" before you decide on your strategy.

4. Be sure to minimize fees. In almost all cases, your best reward card will have no annual fee. There are exceptions, but if you have to pay for a card, you have to have some really, really, really great benefits from it to make it the best reward card for you.

5. Pay off the card each month. This should go without saying, but if you get a card and carry any sort of balance, it can quickly wipe out any rewards you earn. It's usually better not to have a card and forfeit the rewards than to use the card and carry a balance.

6. Consider where the card can be used. Some cards are accepted in more places than others. Visa and MasterCard can be used almost everywhere and American Express is used in most places (including Costco -- the only card they take), but others (Discover for instance) are accepted in far fewer locations.

7. Think of the ease of redemption. How you get your rewards can make a big difference. Some companies make the process seamless and simple (for instance, my card simply credits my account for the reward amount once a year) while others seem to be designed to make it difficult to get your reward (you earn "points" and have to go through 10 steps to actually redeem them.) No matter how much you earn, if it's a hassle (or impossible!) to get the reward, it just may not be worth the effort.

8. Charge all you can on the card. Once you have the above figured out and decide which card or cards are best for you, make the most of it (them) by charging all you can. Look at all your big purchases and see if there's a way to put them on your card. Look at regular, on-going purchases and see if you can pay these (with no cost) via credit card. Especially look at all those purchases that give you extra rewards (such as the gas and grocery store extras noted above) and be certain to get as many of those charged as possible. For a couple creative ideas, check out Can You Charge a Car on Your Credit Card? and Donate to Charity with a Credit Card.

So how's that list? Anything I missed or should change?

Comments

[reash]

I am planning to apply for a credit card online. Can you suggest what are the best credit card to apply?

And if the applicant is from outside United States, is there any chance that the applicant will be approve?

[JEM]

We have a great cash back reward card that we love, we put absolutely everything on it expect the mortgage...(I wish our company would let us!!!) We get a nice chunk of change back every January. They pay you to spend as you usually would. I love it!

[FMF]

JEM --

What card is it?

[Ryan]

I have 2 cards that I primarily use. One is a cash back card for gas, groceries, and drugstore purchases (5% cash back, chase cash plus rewards, sorry no new applicants) and the other is a citi professional card (3% rewards towards gift cards for restaurant, office supply and rental car). Both have 1% on all other purchases.

[Meg]

I have a Citi Dividend Platinum Select card that I LOVE. No annual fees, plus I get cash back on everything I buy. I've probably racked up around $300 this year so far. You get 1% on every purchase and up to 5% at a grocery stores, gas stations, and any one of the dozens of special parters a la Target, Barnes & Noble, etc. You can request a check anytime online, and they mail it to you within a week or so. I got approved for the card with minimal (or perhaps even zero) credit while I was in college, so they can't be that hard to get.

[FMF]

Meg --

I think you can do better. Here's what I found on that card:

"Earn 5% cash back at supermarkets, drugstores, gas stations, convenience stores and utilities including cable for 6 months, and 2% thereafter. Plus, 1% cash back on other purchases with this credit card. Also enjoy no annual fee1, travel benefits and much more."

The 5% is for 6 months only, then it's 2%.

Then, there's this:

"With the Citi Dividend Platinum Select MasterCard you'll earn a little extra cash back on every purchase, up to $300 a year."

You're limited to $300 a year.

For a better option, see this post:

http://www.freemoneyfinance.com/2007/03/i_made_close_to.html

[Interrobanger]

I hate to point this out (and hate even more to point this out a day or so late) but those cash rewards are contributing to higher prices for everyone, including you.

Money for the rewards, be they cash, miles, or something else, all come from a fee the banks charge merchants called the Interchange fee. Merchants would like to be able to offer cash discounts/credit surcharges, but the nature of the fee makes it too complex to account for at the register -- I know, I consult for a merchant group on this issue.

I don't expect you to give up your cards and I don't think you're doing the wrong thing -- but I would argue they're not as great for you as you might think, and they're certainly part of the problem at the macro level.

[rocketc]

What is your solution? Mine is to earn as much cash back from my credit card purchases as possible. As well as shopping through fatwallet or ebates.

[Pinyo]

I haven't been paying enough attention to this. Right now I use my Citi Dividend for almost everything. I think I have to spend some time on this. Thanks for the post.

Problem is I have to do the research on my own since I don't really trust those "best reward card" sites.

[Dan]

I've been using a Chase rewards one for both my wife and I. We net about $1000 tax free each year; posted a few weeks ago on tips and what we do with the money each redemption. The kicker now is that I'm embroiled in a dispute where they're trying to hit me with a late fee after cutting the billing cycle by over a week without informing me (travel, pay bills twice a money, hello!).

[FMF]

Dan --

If you're making that much, then you're charging a ton. And if you're charging a ton, the Chase card isn't the best for you. I have a post coming up on Monday that compares the Chase Freedom card with the Amex Blue at various spending levels. Be sure to check it out -- I think you'll find it interesting.

[her every cent counts]

I just took your advice and have applied for both of these credit cards. I've stayed away from credit cards since I'm awful with late payments, but my bank of america keep the change on my debit account just isn't adding up as fast as these cash reward credit cards might. I'm going to give them a try if I get approved. At the very least, I've been meaning to get a credit card to use for gas only, so I could get some cash back on my gas purchases. Since gas costs a fortune in the Bay Area, that would be schaweet.