Do you have the wrong credit card (or cards) in your wallet? Chances are you don't know. When was the last time you checked – or even thought about it? But, as with all financial products, it's a good idea to review your plastic every year or two. Not only may new or upgraded cards now match your needs better, but your needs themselves may have changed.
If there was a surprise in the recently published J.D. Power 2016 U.S. Credit Card Satisfaction Study, it wasn't that "More than 20 percent of customers have a card which has fees or rewards not aligned with their actual purchase habits." It was that the percentage isn't much higher. But how do you choose the right plastic for you? The simple answer is a straightforward comparison shopping exercise, but before you do that ask yourself these four questions:
Are My Rewards Aligned with My Spending Patterns?
Having the wrong rewards credit cards is the most obvious sign you have the wrong plastic, but it's one a surprising number of consumers get wrong. Card issuers go to great lengths to engineer products that deliver high rewards to groups with particular spending habits, only for their customers to choose ones that are less than optimum.
At it's most basic, this is about people who rarely fly not getting airline cards. But it's also about people picking plastic that really suits them. If you're in a family who spends a lot on groceries and gas and in department stores – and which family doesn't? – you should check out the Blue Cash Preferred® Card from American Express, which can deliver many hundreds of dollars a year in cash back on that spending – including $360 a year just on your first $6,000 in supermarket shopping. But if you don't have a car, never visit department stores and always eat out, something like the Capital One® Quicksilver® Cash Rewards Credit Card or the Chase Freedom Unlimited ℠ might suit you better. They give you 1.5 percent cash back on every purchase.
Am I a Money Micromanager or on Autopilot?
That 1.5 percent cash back may sound small by comparison with the 5 percent you can get on some cards. But that high return generally applies only to categories of shopping that change each quarter, and involves you jumping through some hoops. Expect to have to register anew each quarter and to have to observe spending caps on eligible purchases that could apply quarterly or annually. To make the very most of them, you might also want to schedule your major purchases when they're going to earn you the most cash back: "I'll wait to buy that new television until October, because that quarter electrical goods get me 5-percent cash back." Normally, if you fail to register, bust your spending cap or buy what you want when you want it, you'll get the standard 1-percent cash back.
By now, some readers will be thinking, "What's the problem? That's going to take me about 15 minutes a year, and I'll earn serious rewards." If that's you, go for one of these cards.
But others are hearing a still small voice inside their heads that's telling them, "You're never going to get around to jumping through those hoops." If that's you, stick with cards that offer good cash back year round without your lifting a finger.
Should I Be Obsessed About Credit Card Rates?
If you're planning on rolling forward significant card balances often or every month, you need to be very aware of the annual percentage rate (APR) your plastic charges, and should take care not to use the wrong credit card when making purchases. Use low-interest cards for purchases you plan to pay back over a long period: the Barclaycard Ring MasterCard® has at the time of writing an 8.25 percent variable APR. You can still earn rewards, but you should aim to zero your balances on cards that offer those, because they tend to have high APRs.
Once again, it's surprising how many consumers fail to recognize a simple fact: If you're one of the many who never, ever carry a balance forward on your plastic, you should ignore APRs when choosing a new card. If you never pay interest, you shouldn't worry about interest rates.
How Worried Should I Be About Annual Fees?
It's easy to find cards nowadays that don't charge annual fees. But the ones that do pretty much invariably offer extra rewards, perks and privileges that can – depending on your lifestyle and shopping habits – be worth much more than the fee itself.
For example, those who fly a great deal might happily pay a few hundred dollars annually for priority check-in, security screening and boarding, especially if that comes with access to business class lounges. Other cards, including that Blue Cash Preferred one, charge annual fees that can pay for themselves several times over in cash back rewards.
So don't rule out annual fees on principle. Check first to see whether they could deliver you value for money.
And that's the basis for success when you're comparing all credit cards: Which ones are going to give me the most value at optimum cost? Sometimes you get something for nothing, which is great but not always the best overall deal.
Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author's alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.