Last year, when Jamé Krauter, aged 44, was looking for the best way to save money while planning a family trip to Disney World, she saw several credit card ads online.
What caught her attention the most was an airline credit card and a rewards card from ride. Both promised their new customers thousands of bonus points and perks like free luggage and extra points for Lyft rides.
However, to get all those cool perks, you’d have to spend several thousand dollars in the coming months, in addition to shelling out $200 in annual fees for each card.
Krauter , a fundraising consultant in Bayville, New York, crunched the numbers and quickly discovered that the costs of the trip for her, her husband, and their three children would easily reach the required spending levels. “It was clear that we would benefit,” she says.
They decided to apply for both credit cards. Since they had excellent credit scores, the cards were approved. In December, the whole family enjoyed the trip to Disney World, taking full advantage of the new cards.
Krauter plans to keep several other credit cards that she uses regularly. One of these cards charges an annual fee, but offers 6% cash back capped at $6,000 per year on qualifying grocery purchases. “It’s important to make sure our money is working for us,” explains Krauter, who says she keeps track of those rewards.
It’s unusual for someone to monitor cards so carefully . According to Bankrate surveys, many Americans are paying less and less attention to the pros and cons of their credit cards. “I’ve found that some of my clients still use the same credit card they got as a young adult, maybe one linked to their bank or college credit union,” says certified financial planner Natalie Slagle, founding partner of Fyooz. Financial Planning in Rochester, Minnesota.
On this subject, “our financial needs change as we move through life, but our credit cards may not change to the same extent” , says Slagle.
Regardless of what stage of life you’re currently in, we recommend reviewing your credit card portfolio frequently to make sure you’re getting the most out of rewards, avoiding unnecessarily high and maintain a good credit score. To help you, we’ve got the experts’ answers to five common questions.
How many credit cards do you really need?
Depends on your particular financial situation . According to the Experian credit bureau, during the third quarter of 2020, American consumers held an average of four credit cards each, younger adults ( Generation Z) had only two, while baby boomers had five. However, according to research conducted by the American Bankers Association, close to 25% of those cards are not are used.
Many Americans get by just fine with just two major credit cards, says Ted Rossman, principal industry analyst at CreditCards.com, who cut his card count to two. So, for everyday use, you can have a credit card that’s accepted at many merchants, like a Visa or MasterCard, and keep another one as a backup, in case your main card is lost or stolen, or if you’re a victim of fraud.
For most people, it is most convenient if the credit card is everyday use is a product that offers cash back, rather than one that offers points or frequent flyer miles, says Rossman. This is because cards that offer cash back give you the money directly, rather than a potential benefit, such as discounts for a particular hotel brand, that you may not use.
Other option is a rewards card that offers a flat 2% cash back on all purchases, like Citi Double Cash or Wells Fargo Active Cash. Other cards, like the Chase Freedom Flex, may offer higher amounts, perhaps 5%, on certain spending categories and 1% on everything else. To see which will work best for your current needs, you can compare the benefits of various cards on websites such as WalletHub, CreditCards.com, and NerdWallet.
Even so, as illustrated in Jamé Krauter’s experience, there are those who can comfortably manage more credit cards, as long as they suit their financial circumstances and spending patterns. Maybe you shop often at a specific store and your store card offers you discounts and free shipping. If you travel regularly, an airline card with benefits like early boarding, waived baggage fees, and bonus miles can come in handy. Analyzing your credit card statements can help you decide.
Should you take advantage of new card offers?
Maybe. You may have noticed that you recently received a flood of emails or online proposals for new credit cards. It is certainly a change from the early days of the pandemic, when card issuers refrained from making offers.
Some of these cards look quite tempting. For example, Chase’s Sapphire Reserve credit card recently offered 50,000 registration points and an annual travel credit of $300, while the no-fee Wells Fargo Active Cash card advertised a sign-up bonus of $200 along with 2% cash back on all purchases.
Be sure to thoroughly review the terms. “You have to understand how you can qualify for those bonuses, as it can involve spending thousands of dollars in a few months,” explains Matt Schulz, chief industry analyst at LendingTree, which connects people interested in borrowing money with several loan companies. loans. He also checks the rates. For example, Chase Sapphire Reserve charged an annual fee of $550 plus a fee of $50 for each authorized user.
There are also offers for zero transfer cards, which allow you to transfer a debt from a high-interest card to a with much lower interest. Recently, some card issuers promised that they will not charge interest for up to 21 months, a blessing if you need to rebuild savings or pay down debt.
However, to access most of these zero balance cards, you’ll need to have impressive credit, perhaps a credit score of 700 or more. And remember, “if you decide to transfer, just make sure you can pay off the balance,” says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling, a nonprofit group.
Does it make sense to cancel credit cards that you are not using?
Not necessarily. Like many people, you may have made some recent changes to your spending habits. Looking back over the past two years, you may be traveling less often and maybe many months since you used that high-fee travel credit card. Or, maybe you stopped shopping at a particular store you used to frequent and have put that card away in a drawer.
Or one or more of your credit cards may have changed what they offer. Card issuers often adjust benefits, reduce cash back rewards for certain spending categories, or increase interest rates.
So, should you get rid of the cards you use very little? If you’re paying more in fees than you’re receiving in benefits, you may want to cancel the card you’re not using. But it’s often better to keep them, says John Ulzheimer, a credit expert.
Here’s why: Canceling a card not only reduces a line of credit you have available, it also lowers your score credit. Closing the line of credit on the card increases what is called a “credit utilization rate,” which is the percentage of available credit that you use. This number is important because it represents 44% of your credit score.
It’s true that after a charge-off, as long as you pay your bills on time, your credit score will bounce back, though it may take a few months or longer. So it’s important to avoid canceling a card if you want to apply for a mortgage or loan in the coming months, explains Bill Hardekopf, principal industry analyst at Money Crashers, a card comparison website.
Rebuilding your line of credit after a cancellation can also take time, unless you replace it with another card with an equivalent line of credit. Therefore, “it is usually convenient to keep that line of credit open in case of an emergency, especially if you pay a low rate or if the card has no costs”, adds Ulzheimer.
One option is to ask ask the card issuer to give you another of their offers, one that better suits your needs, such as a free travel card, instead of canceling the service. Make sure the exchange qualifies as a product change, which will allow you to keep the same line of credit and will not affect your credit score.
Can you avoid having your card “cancelled”? of credit?
You can reduce the odds. In 2020 and 2020, many Americans’ cards or credit limits were canceled They were reduced for no reason. While there is no foolproof way to avoid such mishaps from credit card issuers, there are some strategies that can help make it less likely.
To begin with, it’s important to note that many of the cards that the broadcasters canceled, at least in 2021, were used very little or were left inactive, as they say in industry jargon. So make sure you use all of your credit cards at least two or three times a year, even if it’s just to make small payments. Or set up automatic monthly payments with these cards, like a streaming service, says Schulz.
Also keep track of how much you use of each card’s line of credit. Some card issuers may be alarmed if you start to take full advantage of a card that you normally don’t use much, because this could be a sign that you are experiencing financial difficulties.
We also recommend that you maintain your utilization rate less than 44%. If the general credit limit of all your cards is $44,000, total balances should be less than $9,000 per month.
And the lower your utilization rate, the better, summarizes Ulzheimer. Cardholders with credit scores equal to or greater than 750 had an average credit utilization rate of 10% or less, according to FICO, a credit scoring and data analysis firm.
What’s the easiest way to track spending?
Use the tools on your bank’s website or app to monitor your accounts. These tools allow you to set up various alerts and notifications.
If you are worried about staying below certain credit limits, you can, for example, set up balance notifications, which will notify you when your balance exceeds a certain amount. Or you can enable spending alerts for purchases over a specific dollar figure. Payment due alerts will notify you about your due dates for a few days s before the deadline.
You may also want to choose a third-party financial app, like Mint, which connects to your credit card account and gives you a snapshot of your finances.
How to decide? Use any tool that makes managing accounts simpler for you, Hardekopf says.
Another idea you might find helpful is turning on autopay for your credit card bills. This way, you make sure you always pay on time. You can choose to automatically pay your bill in full each month. However, if your finances are less stable, we recommend relying on due reminders and paying as much as possible on time.
Whether you choose automatic payment or due reminders, it’s It’s important to take a close look at account statements each month for potential billing errors and fraudulent charges, Rossman explains. Also, periodically review your credit reports. (You can get reports for free at AnnualCreditReport.com.)
Not only will this help protect you from scams, but it will also ensure that your credit history is accurate and that you qualify for the credit card. credit that best suits your financial needs.
Editor’s Note: This article is also published in the May issue of 2021 of Consumer Reports magazine.
Consumer Reports is an independent, nonprofit organization that works side by side with consumers to create a fairer, safer, and healthier world. CR does not endorse products or services, and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.
Consumer Reports does not has no financial relationship with the advertisers on this site. Consumer Reports is an independent, nonprofit organization that works with consumers to create a fair, safe, and healthy world. CR does not endorse products or services and does not accept advertising. Copyright © 2022, Consumer Reports, Inc.