Thursday, March 19, 2015

DAY 4 - What to Look for in a Credit Card, and What's In My Wallet (Not Capital One)

So you've looked at your credit report, you understand how your credit score works, and now you've decided you want to open a rewards card. Cool. What do you look for?

For me, there are four main factors:

1. What is the signup bonus?


The vast majority of rewards cards offer something like "50,000 bonus points after spending $1,000 in 3 months," or something of that nature. We want the signup bonus to be as big as possible. Why? Some cards only allow you to get a bonus every couple of years, or maybe even once per lifetime. Since you know that the number of hard inquiries matters to your score, you don't want to be wasting an inquiry on a measly bonus, that prevents you from getting a better one down the line. Chase Bank's terms are usually obtainable again two years after you've cancelled a card. American Express is one bonus per person per lifetime (so you only want the card when the bonus is historically the best or close to it). Barclays is usually every 18 months, so is Citi. BofA is the most lenient, allowing you to get bonuses time and time again. However, they aren't very invested in the rewards space, save for the Alaska card and the Virgin Atlantic.

2. What kind of bonuses do I get from every day spending?


This is much less important than the signup bonus, but is still a factor to consider.  I have cards that offer me 3x points on groceries, or 2x points on restaurants. Airlines' branded cards always offer multiples on paid tickets purchased with that airline. When I'm not trying to meet a minimum spend on a card, I will put my dollars towards what gets me the most points per purchase, generally speaking. However your first priority should always be the minimum spend if you're actively working towards one. With the 50,000 mile example above, spending essentially earns you 50 miles per dollar, while the best card in my wallet earns 5x points at office supply. Get it?

3. What other perks come with it?


I have cards that offer me airport lounge access, free checked bags, priority boarding, and one that even offers me primary coverage on collision insurance on my rental cars. You need to put a dollar amount to each perk, and decide what is most worth it to you when deciding to keep or cancel a card. If you don't rent cars much, then maybe the insurance doesn't matter much to you. Pick according to your needs. 

4. What is the annual fee?


Almost every single card out there that provides a halfway decent award has an annual fee. Many of them waive the fee for the first 12 months though. I am not the kind of person that will advocate getting a card with no annual fee. This blog is about taking advantage of opportunities that give real value. I pay an annual fee when the value I get is enough to offset the fee. Let's get this straight though... I'm not opposed to annual fees, but I'm not afraid to cancel a card if it's not worth it to me to hold on after meeting the minimum spend.


Notice what isn't on this list of four.... the interest rate. If I'm not paying interest (and neither should you) then this doesn't matter, does it?

WHAT ABOUT ANNUAL FEES? WHY PAY THEM?


I would hold a card forever if I could. Remember my last post about how 15% of your FICO is determined by your credit history? Leaving perfectly good cards open keeps the average age of your accounts inching higher. Unfortunately, most cards aren't worth the fee after the first year. For every card, I make a note on my calendar at the 11th month of membership, to revisit whether I want to keep it. If I decide it's not worth it, I call the number on the back and let the agent know that the annual fee is the reason.

Oftentimes, the agent will transfer you to a retention specialist who will offer you something of value to keep the card. Many of us have probably done this same process with our cable bill. Contract's over... give me my same rate or else I walk. Same with cards. Just recently, I was looking to cancel a Southwest credit card, which has a $99 annual fee. Agent offered me 5,000 points to keep it, and the card also gets a 6,000 point anniversary bonus. 11,000 points to stay--more than enough points than I had redeemed for our Puerto Rico flights in January. Worth $99? You bet.

Keep in mind, canceling a card does not forfeit the miles that are already in your frequent flyer account. With this Southwest card, once you earn the points off your most recent statement, that amount is transferred over to the frequent flyer program. The bank has no authority to go into the frequent flyer program, so those are safe, and will expire subject to the program's rules.

However, for cards where you earn points that aren't directly to an airline or hotel, unless you redeem them for statement credits or transfer them out yourself, then those will be forfeited. Make sure to redeem them before you cancel. I will create a post on these kinds of points in the near future.

DOUBLING YOUR MILES WITH BUSINESS CARDS


Most travel cards have a nearly identical version for small business. If you can open business cards, you're essentially doubling the amount of points you earn. You don't have to be an incorporated business or even a profitable one to open business cards. All you have to do is use your SSN as the Tax-ID number when filling out the application. This categorizes your business as a sole-proprietorship, meaning your wages are what's going to be used to pay the bills. All liability falls on you. No different than a personal credit card.

However, if you have an incorporated business, feel free to use that! You've got more than enough skin in the game to get business cards without issue.

I have several business cards, although you know that I have a day job. How is this possible? You'd be surprised, but many of you have side jobs/hobbies that more than qualify you for these cards. Rent out a spare room of your house on AirBnB? That's a business. Sell used items on eBay, Craigslist, etc? That's a business. Drive for Lyft, Sidecar, Uber? That's a business. Are you a licensed contractor, engineer, finance professional, tutor, who may provide consulting services or help on the side? That's a business. The most important thing is that you're truthful. For my first business, I sold my old college textbooks and those of friends on Chegg, Half.com, and Amazon. I might have made only about $1000 since inception. But this counts!

If you want further reading on how you can apply and get more cards with a business, here is a very informative post on what you need to do to fill out an application.

http://millionmilesecrets.com/2011/06/10/how-to-fill-out-a-business-credit-card-application/

The best part about business cards is that they are kept separate from your personal FICO scores. The credit line you get will not be considered when looking at amounts you owe, or average age of accounts. You have your own separate business FICO score, so those items won't impact you when applying for a personal card. The only way business cards impact your score is in the inquiries portion. Because you're using your SSN as the Tax-ID, your identity is used for the inquiry. Everything else remains separate.

WHAT'S IN MY WALLET?


I currently have 9 personal cards, and 3 business cards. Each are for different reasons. Three of my personal cards have no annual fee. I keep them around because they don't hurt, and they keep my average age up, like I mentioned before. One of which is my oldest card, opened when I was a senior in high school. It earns nothing, but I charge a latte every six months to keep it active, and benefiting my credit score.

Those 12 cards have given me signup bonuses totaling 450,000 miles, and one card's bonus is two weekend hotel night certificates, good for any hotel in the chain. I'll be using them at a hotel right on the Champs Elysees in Paris, where the rooms go for over 600 Euros per night. Talk about a great value for a $95 fee!
 
It's important to keep a healthy balance based on what you spend your money on, and what kind of rewards you want to obtain. Also, not every merchant takes American Express or Discover, so keep a Visa or a MasterCard handy just in case. If you fly a certain airline more than another, it may help to have their card so you can receive their perks such as checked bags or priority access in line at the airport. Or, if you're just looking for an everyday workhorse card, consider ones that earn 2x or 3x at merchants you frequent, with the option to redeem your points towards either flights or hotels when you choose.

I don't have any Capital One cards. Although the commercials seem appealing, what you get is on the lower end of all card companies. You know how they say "earn double miles and redeem for any flight you want" What they mean is you can redeem your points for a statement credit to offset a flight you've already purchased at a rate of 1 mile per $0.01 in cost. So a $200 flight is 20,000 points. Considering I can book round trip economy tickets to France for 60,000 points on American versus only getting a value of $600 via Capital One. Generally, these flights cost well over $1000 each. You can see where the difference starts to add up, and it increases more when you start looking at booking business or first class.

The biggest gripe I have is that the company hits you with a hard inquiry on ALL 3 credit bureaus. So your score takes a dip everywhere, rather than the 1 pull that a normal card does. Not worth it for me.

Are you ready to start applying? Tomorrow I will share which cards currently have some of the best offers out there. Remember to think about what your travel goals are, and you can apply accordingly.

Peace, love, and an extra pack of peanuts,
LC

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