Credit cards can be a great tool for improving your travel lifestyle. Knowing how to choose a credit card will set you up for travel success for years to come. Are there rules for choosing a credit card? How do you choose the best credit card for you? Should you get a travel versus a cash back credit card? All of these are great questions. Maybe you even have other questions as well, so let’s dig in and come up with some answers.
With all the many credit cards to choose from, how do you pick the right one? It helps to understand these four steps when thinking about how to choose a credit card.
4 Rules For Choosing A Credit Card
1. Get the Best Card You Can With Your Credit Score.
Your credit score determines whether or not you have access to credit cards, in general, and more specifically, to which ones. Even if you’re just starting out or have had some bad luck along the way, don’t be discouraged if you get declined for the more premium credit cards. As long as you begin paying off your cards every month and stay current on all your debts, getting a high enough credit score for the top-tier cards is definitely doable.
Whatever card you need to start with, use it for a few years and build up a solid credit history. Then try applying for a higher level credit card. Sooner or later you will be able to get access and approval for more cards.
2. Decide on Simplicity vs Maximization.
Let’s assume you have a good enough credit score to get just about any card you want. What should you consider next? You will need to decide which is more important to you: simplicity or maximizing the value of rewards.
If you want simplicity, getting a cash back card is the way to go. You get a designated percentage back on every purchase you make and there’s nothing else you need to manage or remember. Easy, right?
However, if you are a maximizer and want to get the biggest value from your rewards, then a travel rewards card will work for you. These cards give you points for every purchase. You can redeem these points for airline tickets, hotel nights, and for various retail purchases. Every credit card point system is slightly different. And remember that redeeming points is always more complicated than getting basic cash back. But for the extra effort you get more value from using these credit cards for purchases.
There is an exception, though. If you don’t enjoy traveling, these cards are not for you. Travel rewards cards focus on people who travel. If you don’t travel at all, stick to cash back rewards credit cards.
3. Factor in the Number of Cards You Already Have.
When you’re working on building a credit history, you might only have one card. You might only get new credit cards once your credit has improved and it’s time to upgrade to a better card.
At the point where your credit score is good enough to get a better rewards card, you might start with one general rewards credit card and use it for everything.
Pick a cash back card that has an above average cash back percentage across all purchases. Or a travel rewards card with a good points program and a few nice perks. Don’t over complicate things too much. One of the more common mistakes that can overwhelm you is having too many credit cards open.
Once that level of credit card usage feels comfortable, you can expand to 2-3 cards. You can still keep things simple even when having multiple rewards cards.
There are a few reasons to do this:
1. Maximize rewards across spending categories. You might put gas spending on one card and travel on another in order to get bonus points on different cards.
2. Added perks. Airline credit cards have great perks. So do hotel credit cards. If you travel a lot, take a close look at these types of cards.
3. Flexibility with points transfers. Each point program has a different set of partners that you can transfer points to. If you wanted complete flexibility on being able to book airlines rewards for example, having a Chase credit card and an American Express card maximizes your partner coverage so you can book the exact airline or hotel that you want.
4. Are You A Business Owner?
If you own a business, you can use what I’ve written above for your business credit cards. When you have a business you will be separating out purchases so why not run all your business transactions through a business credit card and get a bunch of rewards along the way?
Same general rules apply as to how to choose personal credit cards. First, decide if you want rewards maximization or simplicity. Cash back cards are best for simplicity. Travel cards are better for maximization. Second, start with one general rewards card that can cover the majority of your spending. Then consider additional cards if you really want certain perks or want to maximize rewards value beyond that.
How To Choose Between Different Types Of Credit Cards
The first version of a credit card was simple. Banks provided a card with a line of credit. You charged it, then paid it off. That was it. Today, things have gotten a bit more complicated. There are travel cards, student cards, charge cards, business cards, and the categories continue.
Which type of card is right for you?
What are the pros and cons between them all?
Let’s dig in so you can choose a credit card that’s perfect for you.
Cash Back Cards
A cash back credit card gives you back a percentage of everything you spend. Cardholders typically receive between 0.5% and 2% of net spending as an annual rebate. Most people use their cash back to pay down future spending on their card. Some cards also let you get the rebate as cash. It’s like getting a permanent discount on everything you purchase with that card. Most cash back cards do not have annual fees.
PRO: Cash back cards are super simple. You don’t have to do anything to get your cash back. The rebate shows up automatically. For a rewards card, that’s as simple as it gets.
CON: You might be tempted to use the cash back concept as an incentive to purchase more than you usually would. Not a good idea. If you carry any interest on the card, you will lose more money than you will ever get in cash back. Also, watch those foreign transaction fees. Many cash back cards have them.
Travel Rewards Cards
Travel rewards cards are the other main type of rewards credit card. These rewards cards follow the same concept as the cash back cards except users accrue points or miles instead of money. These points can be redeemed for flights, hotel rooms, Amazon purchases, or even in some cases, cash.
Some of these cards also come with great perks such as airport lounge access, free hotel nights, companion airfares, travel credits, and Uber credits.
PRO: If you enjoy traveling and want to maximize the value of your rewards, a travel card works well. You can get a better return than from using a standard cash back card.
CON: To gain access to their perks, most travel credit cards include an annual fee. These fees range anywhere from $100 for mid-tier cards to $600 for the top-tier travel rewards cards. You will have to put in time and energy into planning and spending your miles/points. Finding the right flights and hotels can take some work if you’re trying to maximize their value.
Premium Credit Cards
Premium credit cards charge an annual fee but offer cardholders lots of exclusive benefits. These premium cards often offer a high credit limit and several perks that are difficult, or expensive, to find elsewhere.
PRO: A popular benefit of premium credit cards is 24-hour concierge assistance with tasks like booking travel reservations, hotels, flights, as well as activities like show tickets, restaurant reservations, home emergency coverage, car breakdown issues, and more.
CON: Premium credit cards are aimed at consumers with excellent credit and people who fall in a specific earnings bracket. For these reasons, many folks do not qualify for these types of credit cards.
For those people with excellent credit and a high income, premium cards come with fantastic perks. Their fees can be substantial though, typically starting at $500.
Business Credit Cards
Business credit cards are intended for business owners, no matter the size of the business. These cards usually have a few perks designed for businesses.
PRO: Cash back categories and perks for businesses.
CON: Getting a business credit card can be a bit more complicated than a personal card. You might also have to agree to a personal guarantee. That means if the business can’t make payments, your personal funds would have to be used to pay off the card. Depending on the size of the credit limit and your business, this could be a commitment you might want to consider.
Student Credit Cards
Student credit cards are marketed primarily to people in school who have not yet had a credit card in their own name. These credit cards are a great way to solve the can’t-get-credit-cards-without-having-a-credit-history problem that everyone starts out with.
PRO: The requirements are less stringent and you are more likely to get approved.
CON: They typically don’t have any rewards or perks. It is basically a no-frills card.
Pro Tip: Do you Pruvo all your hotels stays? If not, do what I do and let Pruvo monitor your reservations for price drops. It’s free and it’s the easiest way to save money on all your hotel rooms.
Plain Vanilla Credit Card
The standard or plain vanilla credit card is exactly what it sounds like. There is no cashback, no fees, no rewards for usage, and no real benefits besides an extended line of credit.
PRO: These standard credit cards typically get a lower APR than other cards. They’re also typically easier to obtain and come in handy in case of an emergency as a payment option. If you can’t get approved for a rewards card yet, it’s good to start here and build up your credit history.
CON: There are no perks for spending. In other words, the cards work like a debit card as long as you pay them off in full every month.
Airline Credit Cards
Airline credit cards can be great if you are a frequent flyer. Nearly every airline offers multiple credit cards. The higher the annual fee, the more perks you get while flying with that airline. Perks include priority boarding, free checked bags, discounts on in-flight purchases, companion fares, and lounge access.
PRO: Perks and extra miles when flying with that airline. If you fly regularly, you might consider these perks as essentials.
CON: Some of the best perks like extra miles and lounge access require you to purchase the ticket on that card. They all have annual fees. So if you fly many different airlines, trying to get credit cards means the fees for all of them will add up.
Hotel Credit Cards
The major hotel chains (Hilton, Marriott, Hyatt, and IHG) offer multiple credit cards. The standard perks can be great. An example would be getting a fifth night free when booking. But the real perks come from the loyalty status you achieve from having the card or from spending on the card.
For example, having a hotel credit card can get you 10-15 nights credited to your status every year. Once you unlock the higher status tiers, you can get amazing benefits like room upgrades, free gifts, and late checkout.
PRO: Makes getting status with the major hotel chains a lot easier. Unlocking some incredible perks. You will also accumulate a stash of hotel points when spending at the hotel which you can use for future stays.
CON: To get the most value from these cards, it helps to pick a single hotel chain and stick with it. If you prefer to try new hotels, the value will be more limited.
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The Ultimate How to Choose a Credit Card Question: Travel Perks or Cash Back?
As we’ve discussed, generally, there are two kinds of rewards credit cards offered: travel points or cash back.
But which one should you choose?
If you want to get every dollar in rewards possible, travel rewards programs always beat cash back cards. For credit card companies, there is always a percentage of people who forget to spend their points. This enables them to increase the value of their points over a more straightforward cash back program.
Of course, do not get a travel points card if you don’t travel. It still can be worth it though, even if you’re not a frequent traveler.
Maximizing the value of your rewards does come with an extra cost, though. You’ll have to manage your points. They accrue in your credit card account and you will have to make choices on when and where to spend them. Different redemption methods have different values. And every card has its own redemption methods with its own values.
You could use the rule of thumb of always redeeming your points for miles on an airline program. This is a good rule, and it will usually maximize the value of your points. But you still have to transfer your points to miles.
Each credit card points program will transfer to some airline programs and not others. And once you get your points into the right miles program, you will have to deal with whatever points restrictions your airline has (blackout dates, only certain flights being available, etc.).
Does this sound like too much time and effort when thinking about what credit card to choose? It definitely is for some.
For me, the extra hassle is worth the international flights and great hotel stays that I’ve had over the years. And if and when I need help sorting out my travel options, I’m not afraid to ask for help 🙂
If the extra hassle of a travel rewards programs sounds like too much effort for you, that’s fine. Use a cash back rewards card instead.
Cash back cards still have plenty of benefit without any work:
- You get a straight percentage back on all charges to your card.
- The cash back shows up on your statements either automatically or with very little effort. Worst case, you’ll have to log in and hit a button to initiate the cash back.
- While some cash back cards have maximum payouts, rotating categories, and other confusing options, there are plenty of cards that keep things simple.
Here’s how to make your decision:
- To maximize the value of your points, get a travel rewards card.
- To maximize simplicity, get a cash back card.
Final Thoughts on How To Choose a Credit Card
We need to answer some basic questions when thinking about how to choose a credit card. And for each of us both the questions and answers are different. That also means we need to assess and reassess our goals and what we use credit cards for in the first place. Doing this means that we’ll always make the best choices when getting credit cards!
Want to learn more? Read here.
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