They aren’t as fun or Instagram-worthy as cash—you won’t see Akon posing next to a giant screenshot of his rewards points balance—but credit cards are an important tool for financial health.
Early in your financial history, cards can be helpful for building a credit history, which will in turn help raise your credit score. For the self-employed, or others with unsteady pay schedules, credit cards can also serve as a helpful stopgap between payments—so long as you’re careful not to rack up debt this way.
Arguably the best benefit of credit cards, though, is their reward programs. Today’s financial institutions have moved far past the traditional one to two percent cash back and flight rewards. Swiping can now earn you everything from lattes to weekend admission to a fine arts museum.
But it’s not all free coffee and roses. Many credit cards come with confusing terms, annual fees, or minimum requirements for rewards points. Keeping up with all the newest offers and conditions can feel like a full-time job.
Luckily, I spoke to someone who actually does have a full-time job doing that: Kim Palmer, credit card specialist at NerdWallet and author of three books on personal finance. Her advice will help you cut through the credit card confusion; plus this article will also provide recommendations on the cards best for you based on your shopping habits.
Rewards Are Getting More Personalized
If you thought the ads in your Facebook feed were creepily relevant, wait until the next time you open a credit card—the machines are already analyzing your transaction history to see if you prefer quilted or extra-strength paper towels.
Only kidding. But it is true that credit card rewards are increasingly being designed around the habits of their users.
“Rewards have gotten so much more valuable and more personalized,” said Palmer. “What we’re seeing in the last few years is that there’s more partnerships forming between retailers and credit card companies to offer more personalized rewards.”
Case in point: The Amazon Prime Rewards Signature Visa by Chase. Open exclusively to Amazon Prime members, the card had already been providing 5 percent cash back on Amazon purchases and 2 percent cash back at specific retailers. And as an added bonus, there's no annual fee. In the wake of the eCommerce giant’s purchase of Whole Foods last summer, Amazon announced last month that it would be extending the 5 percent cash back offer to in-store Whole Foods purchases. The no-annual-fee card also comes with a $70 Amazon Gift Card upon approval.
If you get your buzz from caffeine instead of impulsive online shopping, the Starbucks Rewards Visa Card (also from Chase) may be more up your alley. While the card does offer incentives on money spent elsewhere, the true rewards are found inside the ubiquitous coffee chain in the form of Stars, points in Starbucks’ loyalty program.
Every time you use the card to add $1 onto a registered Starbucks gift card, you earn one Star, on top of the two Stars you normally earn per $1 spent—a double shot of rewards. Spend $500 at Starbucks in your first three months of membership and receive 2,500 bonus Stars—roughly 20 free food or beverage items. You’ll also receive eight free “Barista picks” per year, customized food and beverage rewards automatically loaded onto your gift card.
Amazon and Starbucks are two of the biggest names in the world of credit card-retailer partnerships, but they are far from the only ones. Here’s a helpful list of retailer credit cards from NerdWallet.
A cheat sheet for choosing a credit card
Palmer says there’s more to consider than which card gives you the best goodies at your favorite store.
“The first thing you want to do is think about how you’re spending money. Before you even start searching for a card online, it makes sense to review your own spending habits. The way that you spend money determines which card is best for you,” she says.
If your spending is pretty even across the board, look for cards with the best all-purpose cash back deals, which can be as high as five precent back. If you’re into travel, on the other hand, you can focus your search on some of the best flight rewards cards, which offer things like bonus points for travel, free upgrades on flights and hotels and access to swanky airport lounges. And if you just want a low interest rate because you tend to carry a lot of debt, WalletHub suggests ones that offer free balance transfers and offer interest rates below 13 percent, versus the typical 18 percent on most other cards.
“You want to look also at your own credit score and credit history,” Palmer continues. “That will determine the types of cards you are eligible for. If you are carrying any debt whatsoever, focus on finding a card with a low APR and low balance transfer fee. Credit card debt is so expensive, that [paying off card balances] should be priority number one.”
“But if you’re paying off your bill every month, you have more flexibility to think about rewards. Ask yourself first what the APR of the card is, whether or not there’s any fees, and then what rewards are being offered and the rate at which you earn rewards. Cards vary a lot in terms of the rate at which you earn cash back and rewards, and of course you want to maximize those.”
Which card is right for me?
Everyone should do their own research to determine the credit cards best for their needs. Good sites to use to compare cards include CreditCards.com, NerdWallet, ValuePenguin and WalletHub. But there are a few popular cards today that can serve as good starting points in your search:
- For travel buffs: It comes with a fat, $450 annual fee, but the Chase Sapphire Reserve offers a boatload of rewards, including up to $300 in travel credit per year, access to premium airport lounges, and 50 percent extra value on rewards points redeemed towards travel and hotels. To get the most rewards in the first year, you need to spend $4,000 within the first three billing cycles. If you can't do that, then it's better to find a more basic card, ideally with no annual fee.
- For art and history enthusiasts: Any Bank of America credit card (or debit card, if you bank with them) will get you one free general admission entrance to a host of cool museums all over the country, including the Metropolitan Museum of Art in New York. The card has no annual fee, comes with a $150 cash bonus after you spend $500, and earns up to 3 percent cash back on purchases.
- For foodies: Whether you like to hit up your favorite delivery app or load up on groceries to do your best Salt Bae impression, the Capital One Savor is an excellent choice. You’ll receive 3 percent cash back on unlimited dining out purchases and 2 percent on groceries, with no annual fees.
- For the most cash back: Palmer recommended the Discover it rewards card, which offers a rotating 5 percent cash back reward on different restaurants, grocery stores, and gas stations each quarter. New cardmembers also get an unlimited dollar-for-dollar cash back match at the end of their first year. If remembering rotating categories is too complicated consider the Citi Double Cash, which earns two percent cash back on all purchases all the time and also has no annual fee.
- For building credit: If you have bad credit, consider a secured credit card that requires you to pay some money upfront before you buy anything. WalletHub recommends the Primor Secured Visa Gold Card, which requires you to put $200 up front and comes with a $49 annual fee, and a low 10% interest rate on purchases.
For more help with your search, check out NerdWallet’s credit card finder tool, and other sites like ValuePenguin. With some research, you can find cards that not only provide generous rewards, but ones that fit your passions and hobbies.