I found myself having conversations with several friends about must-have credit cards. This post is an attempt to record all of them in one place, and is aimed at credit card beginners. For immigrants from places where plastic money isn’t prevalent, it is important to understand why routing all bills and purchases through credit cards is recommended (purchase protection, cashback, and building a good credit history). This list is by no means comprehensive, just what worked for me. For better resources, go here or here. If you hate having to deal with this stuff at all, scroll to the very bottom for a tl;dr.
Below is a listing of all the credit cards that are nice to have, and why. All cards listed are no annual-fee cards, unless specified otherwise.
- A 2% cashback card for all purchases – Have one card that offers 2% cashback (the maximum known generic cashback as of January 2016) and use it as your default, for utilities and other payments that don’t fall into lucrative, higher cash-back categories (restaurants, groceries, gas etc). I use Citi Double Cash, though there are many with 2% back offers, since it is the only one that offers 2% in cash, without any strings attached. The Fidelity Rewards card for instance, offers 2% only if you deposit the cashback into a Fidelity account. Barclaycard Arrival offers 2X miles (and a little more) but only if the “cashback” is redeemed for statement credits on travel categories – too restrictive. It is however, a good card to have for other reasons listed below. If you can’t get a 2% card, Capital One offers a couple of 1.5% back credit card.
- Chase Freedom – This is a unique card, and worth calling it out on its own, as it offers 5% on rotating categories, that change every quarter. The categories in 2015 included- restaurants, gas stations, CVS/Kohl’s/Walmart, groceries. These are good categories. 5% rewards used to be abundant in the good old days, but most are no longer offered, so that makes the Chase Freedom stand out. In December 2015, Chase Freedom offered 10% cashback on Amazon for a month, which could add up to a lot, considering one can buy several different gift cards from various categories on Amazon. You can go for its more selective cousin, the Chase Sapphire (no annual fee) or Sapphire Preferred (annual fee waived for first year, then $95), but that is more difficult to get. If you do opt for Sapphire, apply for it before you apply to any other card after building a good credit score.
- Best cashbacks for categories with the topmost spending – Useful for 3 quarters a year when Chase isn’t offering 5% on that category.
- Groceries – The AmEx Blue Cash is a clear winner in this category, offering 3% on US supermarkets.
- Gas Stations – Unless you were fortunate enough to get a Sallie Mae 5% on gas mastercard before it was withdrawn, your best bet is BofA’s cash rewards card that offers 3% on gas throughout the year.
- Restaurants – Based on discussions with friends, it appears that cards with no annual fee that offer 3% consistently on restaurants are rare. There are many travel-themed cards offering 2% miles back on dining out. I use Citi Double Cash, or Barclaycard Arrival or whatever card I need to met minimum spend for initial bonus on, to avoid carrying a separate card for restaurants. Those dining out frequently can look at Citi Thank You Preferred that has 2% no strings attached cashback on dining.
- Amazon: For those with significant Amazon spend, the Chase Amazon rewards card offering a consistent 3% no-strings-attached is a great deal. Though ideally you should just wait for Chase Freedom to offer Amazon as a 5% category and buy Amazon giftcards to last you the whole year. The Amazon rewards card also offers 2% cashback on restaurants.
- A card with no foreign transaction fee – This is useful if you do a significant bit of international travel or make frequent purchases for family abroad. I use the Barclaycard Arrival as it offers great exchange rates and has an amazing “spend analyzer” tool, better than similar tools at Mint or Personal Capital.
- A card that offers free on-demand FICO score – Make sure one of your card providers offers you a free on-demand FICO score check on their site. Make sure it is the true FICO score, and not some proxy like FAKO score.
- Wallaby is a great app that will tell you the best card for a online or in-person purchase, depending on your location or the best card for a given category. You do need to manually update your Wallaby account each time you add a new card.
- As a beginner, it is safer to always go for no-annual fee cards. Some annual fee cards pay for themselves with their ‘perks’, but it takes some time to figure out if it is a good deal for your current spending habits.
- Many annual-fee cards waive their fees for the first year – if you find credit-card toying around and optimization fun, it is worthwhile to get these cards, and cancel them after the first year. Just set a Google Calendar reminder for 11 months after your start date to cancel it then. Good examples of such cards are AmEx premier rewards gold card ($100 in airline incidentals free the first year, apart from 50,000 point sign-up bonus) or MileagePlus Explorer (two free United Club passes, apart from 30k-50k in MileagePlus points).
What if I hate having to deal with credit cards at all ?
Clench your teeth for just a little while and get only these 3 cards – Citi Double Cash, BofA Cash Rewards and Chase Freedom. Use Citi Double Cash (key:green-blue colored) for everything except gas and BofA Cash Rewards (key: red colored) for gas. Chase will tell you by text each quarter what it is offering 5% on – use those if you like.
Your recomendation didn’t work / There are better credit cards …
This list is up to date as of Jan/Feb 2016. If you spot better options than what I suggested, please drop me a comment.