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Here’s What Really Happens When You Miss a Credit Card Payment

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Your phone rings — and rings, and rings some more. You know who’s calling. You know what the caller wants, too, but you can’t afford to give the money you owe on your credit cards. So, you let the debt collector leave a voicemail you have no intention of returning.

That’s the wrong way to deal with delinquent credit card debt, says Michaela Harper, debt counselor and director of the Community Education for Credit Advisors Foundation in Omaha, Neb.

“Don’t be afraid to talk to your creditor,” says Harper. “Avoiding them makes the problem worse because it sends it onto the next division” and brings your debt closer to being charged-off, which Harper says consumers with past-due debt should do their best to avoid. (More on that later.)

Credit card debts — or most debts for that matter — become delinquent the moment you miss a first payment. The events that follow the missed payment depend on how long the past-due debt goes unpaid. It begins with friendly reminder calls from the bank to pay your credit card bill, and can culminate in losing up to 25 percent of your annual income to wage garnishment.

The portion of consumers missing credit card payments has been on the rise since the lowest levels of delinquent credit card debt ever recorded were reached two years ago. About 2.47 percent of credit card loans made by commercial banks were delinquent in the second quarter of 2017, according to Aug. 23 figures from the Federal Reserve Economic Database.

Below is a timeline chronicling what happens when you miss a credit card payment, as well as tips from debt management experts on what you can do to mitigate the situation at each point. (You can jump to a specific time period by clicking on the milestones below.)

Zero to 30 days past due: Missed a payment

After you miss your first payment, your debt is delinquent and the clock starts ticking. Your bank should begin to contact you to remind you to make a payment. You are also likely to incur a late fee.

The first 30 days will sound more like courtesy calls, says Randy Williams, president and CEO of A Debt Coach. In reality, the bank is trying to verify your address and personal information to update the system in case your debt becomes more delinquent. (Williams used to work as a bill collector before switching over to debt consulting.)

What you can do

At this point, the bank’s agents may be more willing to provide customer service, so you can ask for an extension or create a payment arrangement to address the past-due debt before the missed payment begins to impact your credit report, which can be as early as 30 days past due. You may also try your luck at asking if the bank could waive any late fees already incurred, although the creditor is not obligated to extend this courtesy.

There’s only so much leeway a bank will give you, says Gordon Oliver, a certified debt management professional at Cambridge Credit Counseling. If you’ve asked for a late payment or interest charge to be waived in the past, you won’t have much leverage.

“There will be different reasons why a creditor may not extend those benefits at the time, but usually those terms are for borrowers who are in better standing,” Oliver adds.

30 to 90 days past due: Collection calls begin

Over the 30- to 60-day delinquency period, the bank will attempt to reach you to collect the past-due amount on your credit card bill.

“This is when they are trying to figure out what’s wrong. They are trying to collect the money,” says Williams.

“At this point it’s starting to affect your credit,” says Williams. He says the robo-collection calls may come as often as every 15 minutes. Borrowers with higher credit scores are likely to see a bigger drop than borrowers with lower scores. According to FICO data, for example, a 30-day late payment could bring a 680 credit score down 10 to 30 points and a 780 score down 25 to 45 points.

In addition to seeing your credit score drop, you will be charged late fees on the past-due account. After you have owed debt for two payment cycles, the CARD Act allows creditors to flag you in their system as a “high-risk” borrower, which means the interest you currently pay will rise to whatever the bank charges for customers at a high-risk status. That number varies from bank to bank but in some cases can get as high as 29.99 percent. The rate will stay that high at least until you have made six consecutive on-time payments, at which point the bank is required by law to reset the rate.

However, “the law doesn’t say they have to do it on their own,” says Harper. So, you will likely need to request a reset. You can find the APR charged to high-risk borrowers in your credit card terms.

What you can do

Harper says if you respond at this point, the bank may ask you to negotiate a payment arrangement.

“Never make a promise to pay that you can’t keep just to get someone off the phone,” says Harper. “If you are silent, you agree to the payment.”

Missing promised payments also gives the bank more leverage if the bill eventually goes to court, says Harper. “If they walk into court and they can point to all of the promised payments, it undermines your credibility.”

Harper advises debtors to be very clear if they cannot meet the bank’s proposed payment arrangements. You need to specifically tell them you cannot make the payments. If possible, take a look at your budget. If you find you are able to send them a small amount every month, tell them.

“That’s a valuable thing because it goes back to when the account charges off. You can slow down your progression toward charge-off by making the partial payments,” says Harper.

A charge-off happens when a creditor believes there is no chance of collecting your past-due debt, so the debt’s considered a loss. The debt gets written off the creditor’s financial statements as a bad debt and sold or transferred to a third-party collection agency or a debt buyer.

“If they feel like it’s a tough situation [you] are going through they will refer [you] to a credit counselor” around the 60- to 90-day mark, says Williams. Again, that benefit may not be extended to all consumers facing financial hardship.

90 to 120 days past due: Bank requests balance in full

After your bill is 90 days overdue, the bank will turn collection over to its internal recovery department to engage in more aggressive collection attempts. Williams says the bank will now be calling for the balance in full, not only the past-due amount.

The bank’s collectors will continue to call, but they may also send you multiple letters every day, or may attempt to reach you via social media, emails or emergency contacts.

Harper says the account may stay with the bank’s internal collections for another 90 days (180 days past due), but it’s important to note that at the 120-day past-due mark, your debt is at risk of getting charged off and being sold to a third-party collection agency.

That’s because the CARD Act states the past-due amount needs to be the equivalent of six months’ worth of your credit card’s minimum payment in order for the debt to be charged off. Including late fees and the amount added in higher interest payments, consumers may reach that figure in as little as four calendar months.

What you can do

If you can’t give them the entire past-due amount or balance in full, take a serious look at your budget. See if there is any room to make even a small payment. If you can find a few dollars, you may be able to enter a repayment plan with the bank, which will at least pause the collection calls. Don’t forget to leverage the collector’s insider knowledge. Explain your situation and ask if you can negotiate a solution with the bank.

“You want to pay off the debt, they want to pay off the debt. They may have solutions they can offer you that you don’t know about,” says Harper.

Once you’ve got an active repayment plan in place, the bank will pull you out of the collection list, Harper says.

120 to 150 days past due: Hardcore collection attempts

Watch your credit report carefully after your account becomes 120 days past due, as it may be charged off at any point. At this point, the collectors will continue to try every channel available to them to get in touch with you and collect on the debt. The attempts may get closer together and collectors may try more aggressive tactics to scare you into paying up.

“One hundred and twenty to 150 days, it is hardcore. Now they are going to offer you a settlement. They will do whatever they want to try and get to you to pay the debt off. It’s basically motivation to get you to pay now,” says Williams.

Debt collectors at this point may also take time to remind you of your rights under the CARD Act and Fair Debt Collection Practices Act as well as their right to collect on the past-due debt.

The bank’s collectors may not directly say they will proceed with legal action or wage garnishment if they do not intend to, as that is illegal under the FDCPA, but they may remind you of those possibilities if you do not pay and emphasize the bank’s right to collect on the debt owed to them, Williams says.

Williams adds, “They never say they are going to sue you; they say, ‘We have the right to protect our asset.’”

What you can do

Williams says at this point the debtor essentially has three options. Bring the account current by paying the entire past-due amount, arrange a debt settlement plan with the bank or try going to a credit counselor to create a debt consolidation plan.

“Near 120 days past due, they need to get some form of help to remedy the account before it goes to a charge off,” says Oliver, who adds that the timing the charge off will be difficult to predict.

For those who may be behind on several bills, Oliver also recommends getting some form of financial counseling to create a plan that addresses all your financial issues.

150 to 180 days past due: Last chance

At 150 days, collections efforts will remain aggressive and may even increase in frequency as the bank is now concerned about losing the debt to a charge-off.

Once your credit card payment is 150 days past due, you may start to hear the bank’s agents’ tactics shift as they may make a last-ditch effort to recover the debt, according to Williams.

What you can do

You will still have the options to pay the balance in full or reach a settlement with the bank, but you may have an additional option: Re-age your debt.

When your account is past due and you enter a re-age program, the late payments and collection activity are removed from your account. As a result, “your credit score may improve by 10 to 15 points if not growing every month from there,” according to Williams.

You will generally be asked to make at least three on-time payments on the debt before your account is re-aged. For example, the bank could ask you to pay $100 each month for three months before bringing your account back up to a current standing, but the bank will add the interest and fees you’ve already incurred to the total amount you owe. After the account is re-aged, you’ll go back to making minimum payments on the total amount of debt outstanding. Re-aging the account may also remove the “high-risk” stain from the account so your interest rate drops to to whatever it was before.

Williams says a re-age can be seen as a win-win for both parties: You are able to catch up on your delinquent debt and — in some cases — have its impact removed from your credit report, and the bank is able to recover the interest and fees that have accumulated since your account became delinquent.

Of course, the credit card company doesn’t have to allow you to re-age the debt and may not offer the option to you, but there is a possibility it will do so if you ask. Keep in mind you are only allowed to re-age an account once in 12 months and twice within five years, per federal policy, and re-aging is only an option on accounts that have been open for nine months or longer. Credit card issuers are allowed to set more strict re-aging rules for its accounts, as well.

After 180 days: Charged off to a third party

When you are about six months past due, it is extremely likely the bank will charge off your account and sell the debt to a third-party collection agency. If the bank does not charge off your account, it may take the matter to court.

If it goes to collection, third-party debt collectors may employ some of the same tactics the bank’s collectors did. Most collection agencies will push hard for the first 90 days, then at the end of that point in time they may decide to sue you, Harper says. Or they may sell your debt to another collections agency.

The third-party collectors will attempt to contact you using every channel available to them for the next 90 days or so, before they must decide to either charge off the debt or sue you. The collectors will likely demand you pay the full balance or ask you pay the balance in thirds, says Harper. If they can’t get a hold of you or get you to arrange a payment plan in that time, they may decide to turn it over to an attorney.

What you can do

You should try the same tactics that you would have used with the bank’s internal collections agency with the third-party agency, negotiating the price down and reaching a settlement with the third-party collector. If you don’t respond to the collection requests, you may be sued.

You may not be sued for some time. Companies can only sue you for unpaid debts within a certain period of time, called a statute of limitations — anywhere within three to 10 years, according to your state’s law. Your debt may be sold and resold several times before that happens. Check with the office of consumer protection at your state’s attorney general to find out what the rules are in your state.

If you are served with a lawsuit, you should check the letterhead to make sure the attorney or company filing the suit on behalf of the collections agency is licensed to practice law in your jurisdiction, says Harper, as you cannot legally be sued for credit card debt by an attorney outside your jurisdiction.

You should also be sure to respond to the lawsuit. If you don’t, you’ll likely lose. The court can automatically side with the lender if you don’t show up in court, also known as a default judgment. That may result in getting your wages or federal benefits garnished to pay the debt, not to mention the credit damage a judgment causes. Federal law states a creditor can garnish no more than 25 percent of your disposable income, or the amount that your income exceeds 30 times the federal minimum wage, whichever is less.

If you can’t afford to settle

If, given your current financial situation, the debt is unmanageable for you and you are not able to settle the account, you may want to consider bankruptcy. But you will have to file before a judgment is entered against you in court, which may be tricky to time, Harper says.

Given the difficulty in timing when the creditor will take your account to suit, you shouldn’t wait if you think bankruptcy is an option for you. Read here for more information on how and when to file for bankruptcy.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Instant-Approval Credit Cards: What You Should Know

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Instant-approval credit cards are exactly what the name implies — immediate, instant-access lines of credit for those who qualify. It goes without saying that they’re ideal for those who need spending power now, but be sure to do your homework before going on an application spree.

Here’s what to know about instant-approval credit cards.

Instant-approval credit cards: Explained

These cards work just like any other credit card, except that in many cases, you can begin using an instant-approval card the same day you’re approved.

In other words, you’ll want to use these cards responsibly to avoid digging yourself into an unplanned debt hole. (We’ll unpack those details in a minute.) The application process varies from card to card, but the higher your credit score, the better your chances of scoring a card with reasonable terms.

You’re more likely to get approved by Discover, for example, if you have “good to excellent credit.”

That’s not to say that instant approval cards are off the table if you have less-than-perfect credit; there are plenty of lenders willing to work with people in this camp, but keep in mind that those with higher credit scores will generally get better interest rates and higher spending limits.

Beverly Harzog, credit card expert and author of “The Debt Escape Plan,” cautions people looking for quick access to credit to be sure they’re using it for smart reasons.

“The basic rules are the same: read the fine print and try not to carry a balance,” Harzog tells MagnifyMoney. “Just because it’s instant doesn’t mean it’s a good card for you. Research all your choices and make an informed decision.”

Another thing to keep in mind is that the word “instant” can’t always be taken literally. With the Discover card mentioned above, for instance, the company usually issues what’s called a “conditional approval” after receiving your credit score and approving your application. This will take a deep dive into your credit history, income and financial background, while also verifying that you indeed meet all the card’s requirements. The takeaway? Instant approval doesn’t always mean it’s a guarantee.

Why you might need an instant-approval card

Instant-approval cards are ideal for people who need credit in a hurry. There’s also the convenience factor of not having to wait too long to start using them. While the application and approval process are more accelerated, Harzog says that your standards should stay high.

According to Harzog, the ideal candidate for an instant-approval card is someone who needs to make an immediate purchase and will be able to pay it off by the time the first credit card bill comes due, thus avoiding interest. If it’s a big-ticket purchase that’s going to take you a bit longer to pay for, using an instant-approval card with a reasonable interest rate is your second-best choice.

Just remember: Applying for credit cards leads to inquiries into your credit report, which can adversely affect your score. To reduce the sting, see if the bank offers a prequalification service. You provide minimal personal information (usually just your address, name and the last four digits of your Social Security number), and the bank tells you if you’re prequalified for a card. This in no way affects your credit score, but it does serve as a great way to help you pinpoint the best card to apply for.

Though an affirmative prequalification doesn’t always mean you’ll ultimately be approved, at least this way you’ll know you’ve got a good shot.

The risks of instant-approval credit cards

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All credit cards come with some level of risk. Harzog warns that there are a number of instant-approval cards on what she calls “the bad credit market.” With these lenders, as long as they can verify your identity, you’re good to go. This may sound amazing for consumers with bad credit, but Harzog advises wariness.

“You have to be really proactive in the way you protect yourself because while some are fine, many use high APRs and maintenance fees to really take advantage of people,” she says.

She points to First Premier as an example. The bank boasts 60-second approvals, but it also charges a $95 “Program Fee” to open your account. From there, consumers are hit with a 36 percent APR, along with an annual fee that could range from $45 to $125, depending on your credit limit. The lower your credit score, the more careful you need to be, according to Harzog.

Aside from sky-high interest rates and surprise fees, another inherent risk that comes with instant-approval credit cards has to do with the likelihood of overspending. Having to wait 10 days to receive a regular credit card is a built-in safeguard against impulse shopping. On the flipside, getting excited about an unplanned purchase — then having instant access to a ready-to-use line of credit — could be a recipe for financial disaster.
“Just be sure that the reason you need to have an instant-approval card works with your overall financial goals and is within your budget if you plan to start using it that day,” Harzog says.

 

Application Fees

Annual Fees

Ongoing APR

Our take...

First Premier

$95

$75-$125 annual fee the first year, then $45-$49 after that.

36%

An awful deal, given the upfront and annual fees, not to mention the skyhigh ongoing APR. If you really need money fast, consider alternatives like a personal loan that doesn’t charge upfront fees.

FingerHut

You may have to make a down payment, depending on the credit program you qualify for.

$0

25.90% (variable)

We aren’t big fans of FingerHut, an online shopping catalog that lets consumers finance their purchases through one of its credit programs. You’re much better off going with one of the secured credit cards featured in the next section.

Total Visa Card

$89

$75 for the first year; $48 after that, but you’ll also incur a total of $75 per year in monthly servicing fees.

29.99%

This is another one that has terrible fees . It makes a lot more sense to take the money you’d spend on these fees and put a deposit down on a  secured credit card . The only way we can justify going with Total Visa is if you really cannot get approved anywhere else, and you really need to build credit. Even then, a secured card would be a better option.

The potential benefits of instant-approval credit cards

Like any other credit card, instant-approval cards, when used wisely, can help you out of a financial jam if you have no other quick financing options. This is especially true if you get a card that allows for cash withdrawals with limited or no fees.

And those playing the long game can actually use them to improve their credit score by keeping their utilization rate low and always making on-time payments.

But if you can’t find an instant-approval card with good terms, going with a secured credit card or prepaid debit card might be a better starting point, assuming you don’t need the spending power right this minute.

Instant-approval credit card alternatives

Secured cards

Let’s make one thing clear right off the bat: A secured card won’t be helpful to someone who needs to put a large purchase on credit right away, doesn’t have cash to fund a card and is looking for speedy credit-card approval.

But if you are looking for a solid way to build credit without going deeper into debt, a secured card is one of the best ways to accomplish that goal.

A secured credit card requires the cardholder to put down a cash deposit at the outset, essentially protecting the bank should you default on your debt. The deposit itself often dictates your credit limit; so putting down a $500 deposit translates to a $500 credit line.

Need more credit? Simply add more and you’re ready to roll. The setup is a roundabout way to build your credit or rehab a poor score (assuming you maintain a low utilization rate and pay the balance off in full each month) as your activity is reported to the credit bureaus.

If you are approved for a secured card, you’ll just need to make the minimum deposit, which varies from issuer to issuer. As your credit score gradually rises and you prove your creditworthiness, you may have the opportunity to request an upgrade to a regular credit card or your lender may bump you up to a regular credit card.

Remember, if the idea is to improve your credit, you’ll want to wait until your score hits the 650 mark before you consider making such a switch. That said, our experts recommend keeping a secured card active for at least one year if you want to see a tangible difference in your credit score.

Harzog adds, “Your score is considered, but they also look at your credit report to see if you have negative items, such as a recent bankruptcy; your income is also a factor.”

When it’s time to transition up, you can begin the process by reaching out to the bank directly to see what regular credit cards you qualify for. (Steer away from ones with annual fees, of course.)

If a secured credit card sounds right for you, check out these two noteworthy picks:

 

Minimum deposit

Fees and fine print

APR

Can you convert to a regular card?

Discover it® Secured Card

At least $200

No annual fee

23.99% Variable APR

Yes

Capital One® Secured MasterCard

$49, $99 or $200, depending on your creditworthiness

No annual fee

24.99%
Variable APR

Yes

Discover it® Secured Card – No Annual Fee

The Discover it® Secured Card – No Annual Fee offers decent rewards to cardholders, like 2 percent cash back at gas stations and restaurants on up to $1,000 in combined quarterly purchases, along with 1 percent back on all other purchases. The interest rate is high, making it all the wiser not to carry a balance. On the bright side, after eight months, Discover will start running automatic monthly reviews to see if you’re eligible for a unsecured card. To learn more, check out this in-depth MagnifyMoney review.

Capital One® Secured Mastercard®

The interest rate is super high on the Capital One® Secured Mastercard®, but again, this is a nonissue if you’re paying off the balance each month. Unlike with the Discover it® card, you can’t earn cashback rewards with this offering, but the minimum deposit is lower, making it a more accessible secured credit card for someone looking to improve his/her credit. One other perk: if you’re unable to pay the full deposit all at once, Capital One will give you 80 days of being approved to do so.

Prepaid debit cards

Getting a prepaid debit card is easy enough — simply use cash to load up the balance, and you’re set. They’re not the same as credit cards, but can be a good alternative if you don’t have access to a traditional checking account or just want an easy, cash-free way to access your money.

How do they work?

Since your payment history for a secured credit card is reported to credit bureaus, using one responsibly is a legit way to build up your credit. Not so for prepaid debit cards. Instead, you prepay the balance, then swipe away until you hit zero.

When are prepaid debit cards a good option?

“If you can’t get a checking account, for whatever reason, a prepaid card might help bridge the gap until you can get an account again,” says Harzog.

In other words, prepaid debit cards represent an efficient, simple way to manage your money. They’re also ideal for people who generally carry a lot of cash on hand, protecting them from theft. Another perk comes if you set up direct deposit so that your paycheck is funneled straight to your prepaid card. According to our insiders, some prepaid card issuers may credit your account with your payroll earnings a full two days early — a worthwhile perk if money is tight.

Just one other important note regarding prepaid debit cards: The fees can be killer. Some attach charges for everything from loading your card to using an ATM. One upside, however, is that the Consumer Financial Protection Bureau has recently tightened up rules for the prepaid debit card industry, issuing a slew of new consumer protections that will take effect next year.

“There are a few that have minimum fees, and these are good candidates,” adds Harzog. “For example, you might want to give your teen’s allowance via a prepaid card so the kid can get used to using plastic responsibly, but if they have a checking account, a debit card can accomplish the same thing.”

If you’re on the market for a prepaid debit card, they’re relatively easy to find. A number of large banks, like Chase and American Express, offer their own versions. You can also find different variations at retailers like Walgreens. Again, just be sure to triple-check the fine print so you know exactly what you’re signing up for.

Prepaid debit cards to consider

Comparing prepaid debit card options? Here are a couple worth mentioning and a few key fees for you to watch out for.

 

Monthly fee

Reload fee

ATM fee

Replacement card fee

Amex Bluebird

$0

$0, unless you want same-day access to a check you deposit via mobile check capture; fee is equal to 1% or 5% of check value.

$0 at any MoneyPass® ATM. Otherwise, there's a $2.50 fee.

$0

Chase Liquid

$4.95

$0

$0 at any Chase ATM, otherwise there's a $2.50 fee.

$0

Bluebird by Amex

Bluebird is operated through a partnership between American Express and Walmart. As far as fees go, Bluebird stands out (in a good way). The card itself, which requires no credit check, is free if you purchase it online; it’ll cost you up to $5 if you go through a retailer.

This card gives you plenty of ways to add funds free of charge, including direct-depositing your paycheck, which will get you access to your funds two days faster. You can also reload with cash at Walmart or go with a free debit card transfer. Mobile check capture is another free option.

For mobile deposit, you’ll have to wait 10 days to access your money, or you can get it in a matter of minutes if you’re willing to pay a fee equal to 1 or 5 percent of the check’s value (or a minimum of $5). We highly recommend sticking to the direct deposit option if you can.

A downside to Bluebird is that to avoid ATM fees, you have to use an ATM that’s within its MoneyPass® network. (You might want to check your nearest locations before opening an account.) Another snag is that cash back from retailers is off the table. You’ll also need to keep in mind that this is an American Express card, which isn’t as widely accepted as other major cards.

Chase Liquid

Chase Liquid is another prepaid debit card worth considering if you plan on reloading funds fairly often. This card lets you load checks and cash, for free, at any Chase ATM. You can also use direct deposit or transfer money from an eligible account. But unlike Bluebird, you can expect a few more fees with Chase Liquid.

You have to have one of Chase’s qualifying accounts, like Chase Premier Checking, to get away from the $4.95 monthly service fee. One other thing: you have to go to a local branch to open your account, so this card doesn’t make sense if there isn’t one in your area.

Final thoughts

Instant-approval credit cards can be a great option for when you need credit now, assuming you don’t carry a balance and you go with cards that have reasonable rates and little to no fees. If that’s out of reach, secured credit cards are an effective way to build up your credit score until you qualify for better deals. As another option, a prepaid debit card is a solid starting point on the road to better money management.

Marianne Hayes
Marianne Hayes |

Marianne Hayes is a writer at MagnifyMoney. You can email Marianne here

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I Got My First Credit Card One Year Ago – Here’s How I Already Have a Good FICO Score

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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When I moved to the U.S. from my hometown, Hangzhou, an eastern Chinese city, in 2012 to pursue my undergraduate degree, the thought of establishing a credit history wasn’t even on my radar. I was, after all, an international student from China, where day-to-day credit card use has only recently caught on.  

It wasn’t until I returned to the U.S. a few years later to pursue my master’s in Chicago that I realized I’d need to establish credit if I planned to launch my career in the States.  

It’s been only a year since I opened my first card last September, and I already have a solid FICO score – 720, the last time I checked.  That’s not a perfect score by any means, but it lands me safely in the “good” credit range, meaning I probably won’t have trouble getting approved for new credit in the future. I still have work to do if I want to get into the “very good” credit category, which starts at 740, according to MyFICO, but for a credit card newbie I’m not disappointed in my progress so far. 

Here’s how I did it:  

I selected the right card for my needs
 

I wish I could say I diligently researched credit cards to choose the best offer and best terms, but honestly, I just got lucky: 

Shortly before graduate school started, I visited friends in Iowa. When we were about to split the bill after dinner at a Japanese restaurant, I noticed that all my friends had a Discover card with a shimmering pink or blue cover. The Discover it for Students card was known for its high approval rate for student applicants, and had been popular among international students. 

I thought, “Oh, maybe I should get this one, too.”  

One of the friends sent me a referral link that very night. I applied and got approved quickly. We both received a $50 cash-back bonus after I made my first purchase — an iPhone — using the card through Discover’s special rewards program. I even received 5 percent cash back from the purchase.  

Besides imposing no annual fee, the card has other perks, like rewarding me with a $20 cash-back bonus when I reported a good GPA, letting me earn 5 percent cash back on purchases in rotating categories, and matching the cash-back bonus I earned over the first 12 months with my account. For me, it was a great starter card, but there are plenty of other options out there.

Check out our guide on the best credit cards for students. 

I also could have explored other options of establishing credit, like opening a secured card, for example, which would have been a smart option if I hadn’t been able to qualify for the Discover it student card.

I never missed a payment

Despite my very limited financial literacy at the time, I attribute my current stellar credit score to the old, deeply ingrained Chinese mentality about saving and not owing. 

I never missed payments, and I always paid off my balance in full each month, instead of just making the $35 minimum payment. I didn’t want to pay a penny of interest. 

Credit cards carry high interest rates across the board, but student credit cards generally have some of the highest APRs. This is because lenders see students like me — consumers without much credit history — to be risky borrowers, and they charge a higher interest rate to offset that  risk. 

Best Student Credit Cards October 2017 

It wasn’t until much later when I learned that payment history is critical to credit establishment. In fact, it is the biggest factor there is. It accounts for as much as 35 percent of my FICO score. Naturally, I felt like I dodged a bullet! 

A Guide to Getting Your Free Credit Score 

I was careful not to use too much of my available credit

My friends with more experience advised me to use as little of my available credit as possible. They warned me that overuse had hurt their credit scores in the past. This didn’t much sense to me, but I followed their advice, for the most part diligently.. 

I later learned this is almost as important as paying bills on time each month. Your utilization rate is another 30 percent of the FICO score. Credit experts urge cardholders to keep their credit utilization ratio below 30 percent.  

That means if you have three credit cards with a total available limit of $10,000, you should try never to carry a total balance exceeding about $3,000. 

A Guide to Build and Maintain Healthy Credit 

I beefed up my score with on-time rent payment 

Keeping in mind the importance of not maxing out my credit card, I never considered paying my rent with the card. In fact, some landlords charge credit card fees for tenants who try to pay with plastic.  

But I did find a way to establish credit by paying rent using my checking account. 

I paid rent to my Chicago landlord through RentPayment, an online service. RentPayment gave me the option of having my payments reported to TransUnion, one of the three major credit-reporting agencies. Because I knew I’d always pay bills on time, I signed up for the program.  

This likely helped me improve my credit mix, another key factor influencing one’s credit score. The more types of accounts you show on your report, the better your score can be — providing you make all your payments on time.  

Yes, I made mistakes. This was my biggest one.

My first foray into the world of credit wasn’t completely blip-free.  

The only thing that hurt my credit, besides my short credit history, was that I had tried signing up for a Chase credit card and other ways to finance my iPhone just a few days before I applied for my Discover card.  

None of the other banks approved my applications, and my score went down from the very beginning due to the number of “hard inquiries” against my report. Hard inquiries occur when lenders check your credit report before they make lending decisions, and having too many inquiries in a short period of time can result in several dings to your credit score. 

I’ve learned my lesson, though. And I haven’t applied for a new credit card since. Today, as I said, my FICO score is a healthy 720, and I am on the lookout for a second credit card now that I’ve graduated and gotten a job. 

Shen Lu
Shen Lu |

Shen Lu is a writer at MagnifyMoney. You can email Shen at shenlu@magnifymoney.com

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Average Household Credit Card Debt in America: 2017 Statistics

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Even as household income and employment rates are ticking up in the U.S., credit card balances are approaching all-time highs. What’s behind the growth of credit card spending among consumers? In a new report on credit card debt in America, MagnifyMoney analyzed credit debt trends in the U.S. to find out exactly how much credit debt consumers are really taking on and, crucially, how they are managing their growing reliance on plastic.

Key Insights:

  • While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. As of December 2016, households with credit card debt owed an average of $8,158, down 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.
  • Credit card balances and credit card debt are not the same thing. The 73 million Americans who pay their bill in full each month have credit card balances reported to the major credit reporting bureaus.
  • Assessing financial health means focusing on credit card debt trends rather than credit card use trends.

Credit Card Debt in the U.S. by the Numbers

Credit Card Use

Number of Americans who use credit cards: 201 million1

Average number of credit cards per consumer: 2.32

Number of Americans who carry credit card debt: 125 million3

Credit Card Debt

The following figures only include the credit card balances of those who carry credit card debt from month to month.

Total credit card debt in the U.S.: $527 billion4

Average credit card debt per person: $4,2055

Average credit card debt per household: $8,1586

Credit Card Balances

The following figures include the credit card statement balances of all credit card users, including those who pay their bill in full each month.

Total credit card balances: $784 billion as of January 2017, an increase of 7.4 percent from the previous year.7

Average balance per person: $3,9058

Who Pays Off Their Credit Card Bills?

42 percent of households pay off their credit card bills in full each month

31 percent of households carry a balance all year

27 percent of households sometimes carry a balance10

Understanding Household Credit Card Balances vs. Household Debt

At first glance, it may seem that Americans are taking on near record levels of credit debt. Forty-two percent of American households11 carry credit card debt from month to month, and, if you look at the total credit card balances among U.S. households, the figure appears astronomical — $784 billion. But that figure includes households that are paying their credit debt in full each month as well as those that are carrying a balance from month to month.

While credit balances are increasing, the amount of debt that households are carrying from month to month is actually much lower than it was leading up to the 2008 financial crisis. The total of credit card balances for households that actually carry debt from month to month is $527 billion.

As of the second quarter of 2017, households with credit card debt owed an average of $8,158.3 That is a decrease of 22.9 percent compared to October 2008, when household credit card debt peaked at $10,588.12b

And as household incomes have risen in recent years, this has helped to lower the ratio of credit card debt to income. Today, indebted households with average debt and median household incomes have a credit card debt to income ratio of 14.4 percent.13 Back in 2008, the ratio was 19.1 percent.

Per Person Credit Card Debt

Once we adjust for these effects, we see that an estimated 125 million Americans carry $527 billion of credit card debt from month to month. Back in 2008, 5 million fewer Americans carried debt, but total credit card debt in late 2008 hovered around $631 billion.16 That means people with credit card debt in 2008 had more debt than people with credit card debt today.

Average credit card debt among those who carry a balance today is $4,205 per person2 or $8,158 per household.3 Back in 2008, credit card debtors owed an average of 23.7 percent more than they do today. In late 2008, the 115 million17 Americans with credit card debt owed an average of $5,567 per person12a or $10,689 per household.12b

Delinquency Rates

Credit card debt becomes delinquent when a bank reports a missed payment to the major credit reporting bureaus. Banks typically don’t report a missed payment until a person is at least 30 days late in paying. When a consumer doesn’t pay for at least 90 days, the credit card balance becomes seriously delinquent. Banks are very likely to take a total loss on seriously delinquent balances.

In the second quarter of 2010, serious delinquency rates on credit cards were 13.74 percent of all balances owed, nearly twice as what they are today. Today, credit card delinquency rates are down to 7.38 percent.14

Our Method of Calculating Household Credit Card Debt

Credit card debt doesn’t appear on the precipice of disaster, but the recent growth in balances is cause for some concern. Still, our estimates for household credit card debt remain modest.

In fact, MagnifyMoney’s estimates of household credit card debt is two-thirds that of other leading financial journals. Why are our estimates comparatively low?

A common estimate of household credit card debt is:

This method overstates credit card debt. The Federal Reserve Bank of New York/Equifax Consumer Credit Panel (CCP) does not release a figure called credit card indebtedness. Instead, they release a figure on national credit card balances. Representatives of the Federal Reserve Bank of New York and the Philadelphia Federal Reserve Bank both confirmed that the CCP includes the statement balances of people who go on to pay their bill in full each month.

To find a better estimate of credit card debt, we found methods to exclude the statement balances of full paying households from our credit card debt estimates. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Even though full payers pay off their statement balance each month, their balances are included in the CCP’s figures on credit card balances.

To exclude full payer balances, we turned to academic research outside of the Federal Reserve Banks. The paper, Minimum Payments and Debt Paydown in Consumer Credit Cards, by Benjamin J. Keys and Jialan Wang, found full payers had mean statement balances of $3,412. We used this figure, multiplied by the estimated number of full payers to find the statement balances of full payers.

Our credit card debt estimate is:3

Credit Card Debt: Do We Know What We Owe?

Academic papers, consumer finance surveys, and the CCP each use different methods to measure average credit card debt among credit card revolvers. Since methodologies vary, credit card debt statistics vary based on the source consulted.

MagnifyMoney surveyed these sources to present a range of credit card debt statistics.

Are We Paying Down Credit Card Debt?

A Pew Research Center study25 showed that Americans have an uneasy relationship with credit card debt. More than two-thirds (68 percent) of Americans believe that loans and credit card debt expanded their opportunities. And 85 percent believe that Americans use debt to live beyond their means.

Academic research shows the conflicting attitude is justified. Some credit card users aggressively pay off debt. Others pay off their bill in full each month.

However, a substantial minority (44 percent)26 of revolvers pay within $50 of their minimum payment. Minimum payers are at a high risk of carrying unsustainable credit card balances with high interest.

In fact, 14 percent of consumers have credit card balances above $10,000.27 At current rates, consumers with balances of $10,000 will spend more than $1,400 per year on interest charges alone.28

Even an average revolver will spend between $58130 and $59731 on credit card interest each year.

Credit Debt Burden by Income

Those with the highest credit card debts aren’t necessarily the most financially insecure. According to the Survey of Consumer Finances, the top 10 percent of income earners who carried credit card debt had nearly twice as much debt as average.

However, people with lower incomes have more burdensome credit card debt loads. Consumers in the lowest earning quintile had an average credit card debt of $3,000. However, their debt-to-income ratio was 21.7 percent. On the high end, earners in the top decile had an average of $11,200 in credit card debt. But debt-to-income ratio was just 4.9 percent.

Although high-income earners have more manageable credit card debt loads on average, they aren’t taking steps to pay off the debt faster than lower income debt carriers. In fact, high-income earners are as likely to pay the minimum as those with below average incomes.32 If an economic recession leads to job losses at all wage levels, we could see high levels of credit card debt in default.

Generational Differences in Credit Card Use

  • Boomer consumers carry an average credit card balance of $6,889.
  • That is 24.1 percent higher than the national average consumer credit card balance.34
  • Millennial consumers carry an average credit card balance of $3,542.
  • That is 36.1 percent lower than the median consumer credit card balance.35

With average credit card balances of $6,889, baby boomers have the highest average credit card balance of any generation. Generation X follows close behind with average balances of $6,866.

At the other end of the spectrum, millennials, who are often characterized as frivolous spenders who are too quick to take on debt, have the lowest credit card balances. Their median balance clocks in at $3,542, 36.1 percent less than the national median.

Better Consumer Behavior Driving Bank Profitability

You may think that lower balances spell bad news for banks, but that isn’t the case. Credit card lending is more profitable than ever thanks to steadily declining credit card delinquency. Credit card delinquency is near an all-time low 2.34 percent.14

Despite better borrowing behavior, banks have held interest on credit cards steady between 13% and 14%37 since 2010. Today, interest rates on credit accounts (assessed interest) is 14%. This means bank profits on credit cards are at all-time highs. In 2015, banks earned over $102 billion dollars from credit card interest and fees.38 This is 15 percent more than banks earned in 2010.

How Does Your State Compare?

Using data from the Federal Reserve Bank of New York Consumer Credit Panel and Equifax, you can compare median credit card balances and credit card delinquency. You can even see how each generation in your state compares to the national median.

Median Credit Card Balance by Age (All Consumers) by State

Footnotes:

  1. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations shows 75.02 percent of people with credit reports had balances on credit cards. The August 2017 Report on Household Debt and Credit showed 268 million adults with credit reports. For a total of 201 million credit card users.
  2. August 2017 Report on Household Debt and Credit , Page 4, Q1 2017, 453 million credit card accounts. 459 million credit card accounts / 201 million credit card users1 = 2.3 credit cards per person.
  3. The 2015 Report on the Economic Well-Being of U.S. Households reports 58 percent of credit card users carried a balance in 2015. 201 million1 * 58% = 116 million people with credit card debt.Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.” This results in a high estimate of 135 million people with credit card debt.

    Average estimate is 125 million with credit card debt.

  4. Using data from the 2015 Report on the Economic Well-Being of U.S. Households, 201 million credit card users * (58 percent not full payers) * $4,262 per individual5 = $496 billion in credit card debt.Using data from Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate 201 million credit card users * (67 percent not full payers) * $4,148 per individual5 = $558 billion in credit card debt.

    Average estimated total credit card debt is $527 billion.

  5. The August 2017 Report on Household Debt and Credit shows $784 billion in outstanding credit card debt. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:[$784 billion – ($3,412 (full payer balance) * 33% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 33% not full payers)) = $4,148

    Using their estimate of 42 percent full payers, from the 2015 Report on the Economic Well-Being of U.S. Households and the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$784 billion – ($3,412 (full payer balance) * 42% full payer * 201 million credit card users1)] / (201 million credit card users * (100% – 42% not full payers)) = $4,262

    Average estimated credit card debt per person is $4,205.

  6. Average per person credit card is $4,2055 and the average household contains 1.94 adults over the age of 18. $4,205 * 1.94 = $8,158.
  7. August 2017 Report on Household Debt and Credit, Compare Q2 2016 to Q2 2017, outstanding credit card debt (Page 3).
  8. August 2017 Report on Household Debt and Credit, Page 3, Q2 2017, credit card debt $784 billion / 201 million1 = $3,905.
  9. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. National Balance on Bankcards — average of $5,551.
  10. Page 30, 2015 Report on the Economic Well-Being of U.S. Households.
  11. 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.

    Between 48 million14 and 58 million15 households carry credit card debt. Using the average of the two estimates, we believe 53 million households out of 125.82 million households carry credit card debt.

  12. a. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit showed 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The August 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    [$866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users)] / (183 million credit card users * (100% – 33% not full payers)) = $5,365

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    [$866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports)] / (240 million people with credit reports * (44.5% not full payers)) = $5,769

    Average estimated credit card debt per person is $5,567.

    b. Average per person credit card is $5,56712a and in 2008, the average household contained 1.92 adults over the age of 18. $5,567 * 1.92 = $10,689.

  13. U.S. Bureau of the Census, Real Median Household Income in the United States [MEHOINUSA672N], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/MEHOINUSA672N, September 6, 2017.
  14. August 2017 Report on Household Debt and Credit , Page 12, % of Total Balance 90+ Days Delinquent, Credit Cards
  15. Statement balances are the balances owed to a credit card company at the end of a billing cycle. Full payers will pay off the entirety of their statement balance each month. Finding an estimate of full payers” statement balances was not an easy task. The Federal Reserve Bank of New York does not provide estimates of full payers compared to people who carry a balance.In order to get our estimates, we turned to academic research outside of the Federal Reserve Banks. In the paper, Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we found robust estimates of the statement balances of “full payers.” According to their analysis (see Table 1-A), full payers had mean statement balances of $3,412 (when summarized across all credit cards) before they went on to pay off the debt.

    We multiplied $3,412 by the estimated number of full payers to get the estimated balances of full payers.

  16. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit shows $866 billion in outstanding credit card debt in Q3 2008. Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows an average balance of $3,412 for “full payers.” Using their estimate of 33 percent full payers, we calculate:

    $866 billion – ($3,412 (full payer balance) * 33% full payer * 183 million credit card users) = $659 billion

    U.S. Census Bureau, Survey of Income and Program Participation, 2008 Panel, Wave 4shows 44.5 percent of all households with a credit report have credit card debt. Using this along with the $3,412 full payer balance from Table A-1 in Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang, we calculate:

    $866 billion – ($3,412 (full payer balance) * (100% – 44.5%) full payer * 240 million people with credit reports) = $587 billion

    Estimated credit card debt is $623 billion.

  17. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Page 30, 2015 Report on the Economic Well-Being of U.S. Households shows that 58 percent of households with credit cards sometimes or always carry a balance.

    201 million * 58% = 116 million people with credit card debt

  18. Source: Survey of Consumer Expectations, © 2013-2015 Federal Reserve Bank of New York (FRBNY). “The SCE data are available without charge at www.newyorkfed.org and may be used subject to license terms posted there. FRBNY disclaims any responsibility or legal liability for this analysis and interpretation of Survey of Consumer Expectations data.”The October 2016 Survey of Consumer Expectations Shows 75.02 percent of the adult population uses credit cards. The August 2017 Report on Household Debt and Credit shows 267 million adults with credit reports. For a total of 201 million credit card users. Minimum Payments and Debt Paydown in Consumer Credit Cards by Benjamin J. Keys and Jialan Wang shows that 67 percent of credit card users were not “full payers.”

    201 million * 67% = 135 million people with credit card debt

  19. The 2013 Survey of Consumer Finances reports 37.1 percent of U.S. households carry credit card debt. There are 125.82 million U.S. households.
  20. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw reported that 46.1 percent of U.S. households carried a balance the month prior to the Survey of Consumer Finances.
  21. The 2013 Survey of Consumer Finances reports a median credit card debt of $2,300 per household with credit card debt.
  22. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic median credit card debt of $3,500 per household. Two-person households systematically underreported their debt.
  23. The 2013 Survey of Consumer Finances reports a median credit card debt of $5,700 per household with credit card debt.
  24. Meta Brown, Andrew Haughwout, Donghoon Lee, and Wilbert van der Klaauw used CCP data and determined a more realistic average credit card debt of $9,600 per household.
  25. The Complex Story of American Debt, Page 9.
  26. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  27. Recent Developments in Consumer Credit Card Borrowing.
  28. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.May 2017 interest rate on accounts assessed interest 14%: $10,000 * 14% = $1,400.
  29. Table 1 in Minimum Payments and Debt Paydown in Consumer Credit Cards.
  30. $4,1482 * 14%28 = $581
  31. $4,2622 * 14%28 = $597
  32. Minimum Payments and Debt Paydown in Consumer Credit Cards.
  33. 2013 Survey of Consumer Finances.
  34. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for baby boomers is $6,889 compared to a national average of $5,551.
  35. 2016 State of Credit Report” National 2016 Average Balances on Credit Cards, Experian, Accessed May 24, 2017. Average credit card balance for millennials is $3,542 compared to a national average of $5,551.
  36. Board of Governors of the Federal Reserve System (US), Commercial Bank Interest Rate on Credit Card Plans, Accounts Assessed Interest [TERMCBCCINTNS], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/TERMCBCCINTNS, September 7, 2017.
  37. U.S. Bureau of the Census, Sources of Revenue: Credit Card Income from Consumers for Credit Intermediation and Related Activities, All Establishments, Employer Firms [REVCICEF522ALLEST], retrieved from FRED, Federal Reserve Bank of St. Louis; https://fred.stlouisfed.org/series/REVCICEF522ALLEST, September 7, 2017.
  38. CCP data shows 76.6 percent of people with credit reports had balances on credit cards in September 2008. The May 2017 Report on Household Debt and Credit shows 240 million adults with credit reports in Q3 2008. For a total of 183 million credit card users.The May 2017 Report on Household Debt and Credit, Page 3, Q3 2008, credit card debt $886 billion / 183 million = $4,720
  39. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017. All average credit card debt balances are calculated using the following formula:(Total Credit Card Balancea – Balance of Population Not Carrying Debtb) / Population Carrying Credit Card Debtc
    1. Total Credit Card Balance = (Average Credit Card Debt Per Capita * Population)
    2. Balance of Population Not Carrying Debt = Average Credit Card Debt Per Capita * Population * % of Population Using a Credit Card
    3. Population * % of Population Using a Credit Card * (1 – .375)
  40. State Level Household Debt Statistics 1999-2016, Federal Reserve Bank of New York, May, 2017.
  41. Data from Consumer Credit Explorer.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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PayPal Launches a 2% Cash Back Rewards Card: Double is the New Rewards Standard

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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PayPal’s new Cashback Mastercard, launched Aug. 30, is packed with features that pin it head to head with the current highest no-fee flat-rate cash back credit card on the market.

The PayPal Cashback Mastercard® is a no-fee rewards card that offers users a flat 2 percent cash back upfront on all eligible purchases made using the credit card. The offer is a step up from the current leading cash back card, the Citi® Double Cash Card, which credits 1 percent upfront and another 1 percent on what cardholders pay off each billing cycle.

The digital and mobile payment company partnered with Synchrony Bank to launch the Cashback Mastercard, which grants users benefits exclusive to PayPal and Mastercard members.

Although it boasts a generous cash back offer, the PayPal Cashback Mastercard® has its drawbacks.

“The 2 percent cash back rate is a solid offer. But the PayPal Cashback Mastercard® falls short in three main ways: no sign-up bonus, high APR and no 0% introductory period,” says Chris Mettler, president of our sister site CompareCards.com.

How the PayPal Cashback Mastercard® works

PayPal is clearly targeting PayPal users with this new cash back rewards card. The application for PayPal’s new credit card is only open to existing PayPal customers. Access to the application is granted after users submit a username and password to log in to a PayPal account.

They are then redirected to an application on the Synchrony Bank website. After filling in sensitive information, applicants have the option to set the card as a default payment option in their PayPal wallet and purchase Synchrony Bank’s card security program before submitting the form.

If approved, customers are charged one of three variable interest rates — 16.99%, 24.99% or 27.99% — based on creditworthiness and other factors like income. PayPal doesn’t charge cardholders an annual fee.

Cardholders can earn an unlimited, flat 2 percent cash back on all eligible purchases made using the PayPal Cashback Mastercard®. The cash back rewards are credited directly to the user’s digital wallet on PayPal. The money stored on PayPal wallet can be used to make purchases where PayPal is accepted, sent to peers, or cashed out to a bank account.

Cardholders don’t need to wait for a physical card to show up in the mail before they can start earning rewards. Users have immediate access to the line of credit through their PayPal account. PayPal’s Cashback Mastercard will show up right away in their PayPal wallet, where it can be used to make purchases or pay bills online.

How to qualify for the PayPal Cashback Mastercard®

Borrowers with good or excellent credit scores are most likely to qualify for the PayPal Cashback Mastercard, but those working to better a poor credit score may qualify for a card, too.

Applicants are approved for one of three interest rates, based on creditworthiness and other factors. The lowest rate, 16.99%, is offered to applicants with the best scores, whereas the highest rate, 27.99%, is reserved for applicants who are a greater credit risk.There is a 24.99% APR that’s likely to go to anyone that falls in between.

What we like about the PayPal Cashback Mastercard®

2 percent cash back on all eligible purchases

PayPal’s Cashback Mastercard® is now the highest, no-fee rewards card on the market. The 2 percent cash back feature is the greatest value to credit card users who want a simple, straightforward way to earn rewards. This cash back card is ideal for users who make most of their everyday purchases on a credit card and pay off the card’s balance each month.

Cardholders will get 2 percent cash back on all eligible purchases made at Paypal.com, eBay.com and anywhere Mastercard is accepted using the PayPal Cashback Mastercard®.

Automatically added to PayPal Wallet

The credit card is automatically linked and added to the PayPal wallet, a digital wallet that lets users pay for purchases online with linked bank accounts, credit and debit cards, or money on the account balance. That means users opening the card to make a purchase can gain access to the line of credit and earn rewards for spending right away.

Redeem cash rewards to PayPal balance

To use any cash back earned, users must transfer the money to their PayPal balance. Once in the digital wallet, that money can be used to complete online purchases, pay bills, or send money to peers all over the world.

No cash back restrictions

PayPal doesn’t cap the amount of cash back users can earn or set a minimum on the amount of cash back a user can redeem. Plus, cash back rewards won’t expire, so users aren’t pressured to use the money or lose it by a certain date.

Mastercard benefits

PayPal Cashback Mastercard® users also gain exclusive Mastercard cardholder benefits. They include doubling the length of warranty coverage on purchases up to one year, 60-day price protection, and Mastercard’s identity theft protection service.

What we don’t like about the PayPal Cashback Mastercard®

For PayPal customers only

You must have a PayPal account in order to apply for a PayPal Cashback Mastercard® account and keep the account open to maintain the credit account.

If your PayPal account is closed, or you unlink the card from your PayPal account, your card account will be closed. If you have cash back available, you won’t be able to redeem those awards, and they will be forfeited.

If your PayPal account is suspended for any reason, you won’t be able to redeem cash back to your PayPal balance until the account is back in good standing.

No sign-up bonus

The PayPal Cashback Mastercard® misses an opportunity to offer users even more value by omitting a sign-up bonus. If users are looking to earn a boost in credit rewards after a few months of use, they may have more luck with a cash back card like Chase Freedom®, which offers 1 percent back on all purchases and earns a $150 Bonus after you spend $500 on purchases in your first 3 months from account opening.

No interest-free period

The card’s benefits also exclude an interest-free period. So while users can make a purchase with the line of credit immediately after opening the account using the PayPal wallet, they should avoid making large purchases as interest will begin to accrue right away.

Credit users should instead use a credit card with an interest-free period like the Discover it® Cashback Match™ credit card, so they have more time to pay off the balance of the purchase before interest kicks in. The card offers an 0% introductory APR for 14 months on purchases and balance transfers.

A high APR

Cardholders should be careful not to carry a balance on this card to avoid getting hit with interest charges. For borrowers with a poor credit rating, the card charges a super high 27.99% APR, which trumps any 2 percent cash back earned that period. To avoid paying interest and make the most of the Cashback Mastercard, cardholders should make sure to pay off the card balance each period.

3 percent foreign transaction fee

It costs cardholders 3 percent to swipe the PayPal Cashback Mastercard® overseas. Even with 2 percent cash back, users end up paying 1 percent to make foreign purchases.

Who the PayPal Cashback Mastercard® is best for

The PayPal Cashback Mastercard® is best for existing PayPal customers who want a straightforward way to earn cashback on all of their everyday purchases.

If a cardholder is a heavy online shopper, the Cashback Mastercard may also be a good choice because they can easily earn cash back from using the card as a payment option when they pay online using PayPal, then credit the cash back to their PayPal balance for future purchases.

PayPal Cashback Mastercard<sup>®</sup>

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Alternatives to the PayPal Cashback Mastercard

PayPal Extras MasterCard

If you prefer to earn credit card rewards in points instead of cash back, you can apply for PayPal’s other no-fee credit rewards option, the PayPal Extras MasterCard®. This card has a traditional points reward structure. It awards cardholders three times points on each dollar spent at gas stations and restaurants, double points on purchases made through PayPal or eBay, and one point per dollar spent everywhere else.

Unlike the cash back card, rewards earned on the PayPal Extras Mastercard expire® within two years if unused or if no purchases are made using the card for one year.

Citi® Double Cash Card

PayPal’s 2 percent Cashback Mastercard is only for PayPal account holders. If the benefits and 2 percent cash back upfront aren’t enough to rope you into creating a PayPal account, the Citi Double Cash Card® is a good alternative.

The card rewards 2 percent cash back on all purchases, but not all at once like PayPal’s Cashback Mastercard® does. Cardholders earn 1 percent cash back when they spend, and then 1 percent cash back when they pay, instead of awarding the entire 2 percent upfront. The Citi® Double Cash Card also omits an interest-free period for purchases and a sign-on bonus. However, it does offer a 0% introductory 18-month balance transfer.

PayPal Cashback Mastercard® FAQ

Cardholders receive 2 percent cash back on all eligible purchases made at Paypal.com, eBay.com and anywhere Mastercard is accepted using the PayPal Cashback Mastercard®.

No, cash back rewards don’t expire and can be redeemed to your PayPal balance at any time.

If you are unable to pay off your statement balance in full, you will be charged a variable interest rate of either 16.99%, 24.99% or 27.99% on purchases made in the billing period and be required to make a minimum payment.

Cardholders can redeem cash back by transferring the cash back balance to their PayPal account balance. The funds can then be used to make purchases anywhere PayPal is accepted or transfer money to peers using PayPal.

Use a cash back credit card that fits your day-to-day spending needs best, pay your bill in full each month, and spend only what you can afford to pay off.

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Credit Cards

What’s the Difference Between a Charge Card and a Credit Card?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Source: iStock

If you’re shopping around for your next credit card, chances are you might come across a charge card. It can sometimes be difficult to know the difference unless you know the telltale signs. And if you choose the wrong kind and don’t use it correctly, you could end up in a world of financial trouble.

Charge cards aren’t too much different from credit cards, but there are a few key things you need to know.

What is a charge card?

As with a credit card, you use a charge card to make purchases and pay the balance off later. Here’s the biggest difference: Unlike credit cards, which let you keep a revolving balance from month to month, a charge card requires you to pay off the balance in full by your bill’s due date. You cannot make a big purchase and pay it off over time.

Charge cards also have no preset spending limit. This doesn’t mean that it has no spending limit. Rather, your actual spending limit can change quite often depending on how much you’re using the card, if you have any late payments on your record, etc.

At MagnifyMoney, we recommend you always pay off your credit card statement balance in full each month. If that’s something you already do, you’d find using a charge card is pretty much the same as using a credit card. However, there are a few differences that might make you want to choose one type of card over the other.

Pros and cons of using a charge card

Pro: You’re required to pay off the balance in full

One of the biggest advantages of a charge card is that you are required to pay it off in full each month. If you’re the type of person who has a hard time maintaining the discipline to do this normally, using a charge card might force you to develop this good habit. And because you will pay off the balance in full each month, you’ll never pay any interest charges and you won’t rack up any debt.

Con: You’re required to pay off the balance in full

Paying off your bill in full each month is a huge advantage, but it can also be a disadvantage. Yes, it’ll keep you out of debt, and you won’t have to pay interest charges, but if you’re relying on the card as a source of emergency funds, you’ll be better served with a credit card that’ll let you carry a balance from month to month if a very expensive emergency pops up.

Pro: Many charge cards come with a smokin’ hot rewards program

For example, as of this writing, the Platinum Card® from American Express gives you $15 in Uber credits each month (plus a $20 bonus in December), a $200 airline credit each calendar year, and a 60,000-point sign-up bonus if you spend $5,000 within the first three months, among numerous other perks. There are, of course, credit cards that offer similarly attractive rewards.

Con: Charge cards often carry high fees

Again, we’ll use the Platinum Card® from American Express as an example: It carries a $550 annual fee. The cheapest card from Amex is the American Express® Green Card that has a $95 annual fee, though Amex waives it the first year. And if you make a late payment or fail to pay your bill in full? You could be slapped with a late fee of (up to $38 on the aforementioned Platinum Card), and it’ll go down as a negative mark on your credit report.

Con: There aren’t a lot of charge-card options

You may be sensing a trend — American Express is among the last major credit card issuers to offer charge cards. That means your choices of charge cards are already limited — you can choose from just three cards: American Express® Green Card, the Premier Rewards Gold Card from American Express, and the Platinum Card® from American Express. American Express isn’t as widely accepted as Visa or Mastercard, so you’ll want to make sure you have a backup when you’re out shopping, just in case it isn’t accepted.

Pro: A charge card helps you build credit

Charge cards can also help you build credit, and you don’t need to go into debt to do it. As long as you pay on time, the account will be listed on your credit report as an example of your positive payment history — the most important aspect of your credit score. And for newer scoring models, charge cards won’t affect your credit utilization ratio — the second most important factor in determining your credit score. That’s because American Express reports its charge cards as “open” lines of credit, as opposed to a revolving line of credit, and FICO does not factor open lines of credit into its credit utilization calculation.

But that’s not always the case. Rod Griffin, the director of public education at Experian (one of the major credit reporting agencies), said some credit scores treat open credit lines like revolving accounts. “Newer scoring systems are more likely to differentiate between the two than older credit scoring systems,” he said. “Your credit report almost certainly will not show a zero balance for the charge card if you use it and could affect your utilization rate.”

With newer scoring models that don’t factor open credit lines into your credit utilization ratio, that means making a big purchase (and paying it off at the end of the month) won’t have any effect on your credit score, nor will it lower your credit utilization ratio if you have other credit card debt. (A credit card also helps you build credit, but you may find yourself tempted to carry a balance.) Checking your credit score regularly will help you understand how your charge card use affects your credit standing.

Con: A changing spending limit can be bothersome

If you want to make a big purchase or it’s getting toward the end of the month, the only way to know for sure if you have any credit left is to log in to your account and check. Still, you shouldn’t be using your charge card willy-nilly to buy Learjets and mansions anyway, so as long as you keep your spending under control, it’s unlikely you’ll go over your limit.

The bottom line

Charge cards do have their quirks. But as long as you keep your spending within a reasonable range for your lifestyle and pay off your bill in full each month (as you should do with a normal credit card anyway), a charge card can be a useful tool in your financial arsenal.

Lindsay VanSomeren
Lindsay VanSomeren |

Lindsay VanSomeren is a writer at MagnifyMoney. You can email Lindsay here

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Best of, Credit Cards

Best Credit Cards of 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

As you look for a new credit card, remember the golden rule of credit cards:

Choose a rewards card for your spending bonuses. Choose a low-rate card for your borrowing and paying off debt. Don’t confuse the two types of cards!

We examined each card type’s fine print to understand fees, rewards rates, interest rates, and more. After digging into the cards, we determined that these are the best credit cards to have in your wallet.

Credit cards offer more than unparalleled consumer protections and an easy way to track your spending. They can offer 2% cash back, 6% category bonuses, and travel miles. Credit card issuers spent more than $22.6 billion on rewards in 2016 alone. That’s 23% more than they spent in 2015. If you haven’t changed your rewards credit card in the last two years, you’re leaving money on the table.

Even if you carry credit card debt from time to time, credit cards can be a tool to help you plow out of debt. No matter what your situation, MagnifyMoney can help you find the credit card that will put money back in your pocket.

Best Cash Back Rewards Cards

Citi Double Cash®

The Citi Double Cash® credit card offers straightforward rewards. You earn 1% when you buy and 1% when you pay off your bill. This is a great card for people who don’t want to worry about difficult reward redemptions. It’s also one of the first credit cards that encourages you to pay off your bill in full each month. After all, you don’t get the second half of your reward until you pay off your credit card.

Best Cash Back Credit Card of 2017

Citi® Double Cash Card – 18 month BT offer

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Citi® Double Cash Card – 18 month BT offer

Annual fee
$0*
Cashback Rate
1% when you buy, 1% when you pay
APR
14.49%-24.49%

Variable

Credit required
good-credit

Excellent/Good

Alliant Cash Back Visa® Signature

With 3% cash back in the first year, and 2.5% all other years, this card offers some of the best pure cash back rates on the market. The $59 annual fee means that you have to spend at least $1,000 per month to come out ahead relative to a 2% earnings rate. Not everyone feels comfortable putting that much on a credit card each month. But if you regularly spend that much (and pay off your debt), this is the right credit card for you.

First Year 3% Back

Alliant Cashback Visa® Signature Card

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Alliant Cashback Visa® Signature Card

Annual fee
$0 For First Year
$59 Ongoing
Cashback Rate
Unlimited 3% cash back during the first year; 2.5% cash back afterwards
APR
11.24%-24.24%

Variable

Credit required
good-credit

Good

Capital One® BuyPower CardTM

This credit card isn’t for everyone, but it offers compelling rewards for GMC devotees. Since GMC doesn’t want to earn money from this credit card, they offer premium rewards and perks to all cardholders. Perks include 5% back on the first $5,000 you spend on the card. If you plan to buy a new GMC vehicle, make this your new favorite credit card.

Up to 5% Toward Your Next Vehicle

Capital One® BuyPower Card®

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Capital One® BuyPower Card®

Annual fee
$0
Cashback Rate
5% on your first $5,000 in purchases, 2% after that
APR
13.90%-23.90%

Variable

Credit required
fair-credit
excellent-credit

Excellent/Good

QuicksilverOne Rewards® from Capital One

If you struggled with credit in the past, but you’re back on track, the QuicksilverOne® Rewards card from Capital One® offers the right rewards at the right price. If you spend at least $225 per month on credit cards, you’ll earn more than you pay in annual fees. Normally, we don’t recommend cards with annual fees and low earning rates. However, this card is an exception if you have fair credit. Once your credit improves, you can call Capital One and ask for a no-fee card with better rewards.

OK for Fair Credit

Capital One® QuicksilverOne® Cash Rewards Credit Card

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Capital One® QuicksilverOne® Cash Rewards Credit Card

Annual fee
$39
Cashback Rate
Unlimited 1.5%
APR
24.99%

Variable

Credit required
fair-credit

Average

Best Cash Back for the Way You Spend

Blue Cash Preferred® Card from American Express

Everyone needs to eat, but grocery spending can eat into your budget. By using the Blue Cash Preferred® Card from American Express, you can save 6% at U.S. supermarkets without clipping a coupon. You’ll pay a $95 annual fee, but big grocery spenders will earn that much and more from their annual supermarket spend.

6% Supermarket Bonus

Blue Cash Preferred® Card from American Express

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Rates & Fees

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Blue Cash Preferred® Card from American Express

Annual fee
$95
Cashback Rate
6% at U.S. supermarkets on up to $6,000 per year in purchases (then 1%), 3% at U.S. gas stations and select U.S. department stores, 1% on other purchases
APR
13.99%-24.99%

Variable

Fort Knox Federal Credit Union Visa® Platinum Card

With an unlimited 5% cash back on fuel purchases, this is one credit card that can lower your pain at the pump. Unlike other credit cards, rewards get applied to your statement balance. This means you don’t have to fiddle around with awards programs. You’ll simply pay less each month.

5% Gas Bonus Cash

Fort Knox Federal Credit Union Visa® Platinum Card

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Fort Knox Federal Credit Union Visa® Platinum Card

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
5% back on all gas station spending, 1% on all other purchases
APR
10.25%-15.25%

Variable

Credit required
good-credit

Good

PenFed Premium Travel Rewards American Express® Card

If you’re constantly in the air, the PenFed Premium Travel Rewards card offers one of the market-leading rates for purchasing airfare. If you want to redeem your rewards for more airfare, you can find rates as high as 4.5%, but if you want cash, the PenFed Premium Travel Rewards card offers the best rate. You’ll earn an effective 4.25% cash back rate whenever you buy tickets directly from an airline.

5x Airfare Bonus

PenFed Premium Travel Rewards American Express® Card

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PenFed Premium Travel Rewards American Express® Card

Annual fee
$0
APR
9.74%-17.99%

Variable

Credit required
good-credit

Good

Capital One® Premier Dining Rewards

Offer is no longer available. It’s easy for restaurant spending to dominate your credit card spending. If you eat out a few times a week or more, the 3% cash back on dining will help you enjoy more rewards after you enjoy your meal. Plus, this no-annual-fee card comes with travel protections that usually require at least a $59 annual fee. Foodies can feel good about having a card that rewards them for the way they spend.

Also Consider Also Consider

Chase Sapphire ReserveSM

If you’re a traveling foodie, you may want to consider the Chase Sapphire ReserveSM Credit Card. The card allows you to earn 3 points for every dollar you spend on dining or travel and 1 point for every other dollar you spend. When you redeem the points for more travel, you get a 50% bonus, which brings the rewards rate up to 4.5 cents for every dollar you spend on dining or travel.

The card comes with a hefty $450 annual fee, but it also comes with a $300 annual statement credit for travel purchases and superior travel protections. Plus, you’ll earn a 50,000 point bonus if you spend $4,000 in three months.

Amazon Prime Rewards Visa® Signature Card

If you’re already an Amazon Prime customer, you can enjoy an additional 5% off with every purchase. Anyone who is addicted to Amazon’s convenience will love saving even more on their everyday spending. Of course, some people worry they spend too much online. This credit card doesn’t have to make your problem worse. If you choose to remove “instant purchase” from your Amazon account, you’ll force yourself to think before you check out

5% Online Retail

Amazon Prime Rewards Visa® Signature Card

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Amazon Prime Rewards Visa® Signature Card

Annual fee
$0 For First Year
$0 Ongoing
Cashback Rate
5% back on all Amazon purchases, 2% back at restaurants, gas stations, and drugstores, 1% back on other purchases
APR
15.24%-23.24%

Variable

Credit required
good-credit

Good

Also Consider Also Consider

Target REDcard™ Credit Card

Target REDCardTM

If you’re not already an Amazon Prime member, the Amazon card isn’t a good fit for you. Instead, consider the Target REDCard™. As a REDCard holder, you’ll get 5% off all Target and Target.com purchases, free shipping, and an extra 30 days for returns. When it comes to everyday shopping needs, you can’t find a better rate than 5% off. Just don’t carry a balance on this card: REDCard™ credit cards carry a 23.65% APR. If you want the same discount without another credit card, you can also get a REDCard™ debit card.

Best Travel Rewards Credit Cards

Chase Sapphire Preferred® Credit Card

Kiplinger named the Chase Sapphire Preferred® Credit Card their 2016 “Easiest for flight redemption” credit card. We can see why. Customers can use points

directly with airlines, redeem through the Chase rewards portal, or choose a statement credit. With a huge intro bonus and great perks, this makes a great card for airline travelers.

The information related to the Chase Sapphire Preferred® Card has been collected by MagnifyMoney.com and has not been reviewed or provided by the issuer of this card.

Best Overall

Chase Sapphire Preferred® Card

Annual fee
$0 Intro for the First Year, then $95
Rewards
2 points on travel and dining, 1 point on all other spending
APR
16.99%-23.99%

Variable

Credit required
good-credit

Good/Excellent

Also Consider Also Consider

Barclaycard Arrival Plus® World Elite Mastercard<sup>®</sup>

Barclaycard Arrival Plus® World Elite Mastercard®

The Barclaycard Arrival Plus® card offers 40,000 bonus miles when you spend $3,000 in your first 90 days. On top of that, users will earn two miles for every dollar they spend and a 5% bonus on every mile they redeem. Each point is worth one penny and can be redeemed for a statement credit on all travel-related purchases. The Arrival Plus® card requires an $89 annual fee that is waived in the first year.

Unfortunately, Barclaycard’s perks are not quite as good as Chase’s. They have trip accident and trip cancellation insurance, but you don’t get auto rental collision coverage, baggage protection, or other important perks. From a points-earning perspective, Barclaycard Arrival Plus® World Elite MasterCard® is a long-term winner, but lack of perks puts it behind Chase Sapphire Preferred.

Capital One® Venture® Rewards Credit Card

Capital One® Venture® Card

Capital One® Venture® Card allows you to earn a 50,000 point bonus when you spend $3,000 in your first three months. You’ll also earn an unlimited two miles for every dollar you spend. With just a $95 annual fee, waived the first year, this is one of the few travel rewards cards that might be worthwhile to lower spenders. The card also comes with all Visa Signature® benefits. Those benefits include secondary auto rental collision damage waivers, hotel upgrade options, and free extended warranties. If you can’t justify a high annual fee, consider this Venture® card for your travel credit card needs.

Discover it® Miles Travel Credit Card

The Discover it® Miles card offers one of the best rewards rates for travel credit cards without an annual fee. You’ll earn unlimited 1.5 miles per dollar, and Discover will match all the Miles you’ve earned at the end of your first year. Points are worth 1 cent each, so your first year you earn an effective rate of 3% on all your spending. You can redeem your rewards at any time for any type of travel.

3x Rewards Your First Year (With No Annual Fee)

Discover it® Miles

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Rates & Fees

Discover it® Miles

Annual fee
$0
Rewards
Unlimited 1.5x Miles per dollar on all purchases, every day, with no annual fee. We'll match all the Miles you've earned at the end of your first year.*
APR
11.99%-23.99%

Variable

Credit required
good-credit
Good / Excellent

Also Consider Also Consider

Bank of America® Travel Rewards Credit Card

BankAmericard Travel Rewards® Credit Card

The standard rewards rate for this fee-free credit card is 1.5 miles per dollar spent. However, you’ll also earn a 20,000 point bonus if you spend $1,000 or more in your first 90 days. High net worth individuals also have an opportunity to boost their rewards. If you have at least $20,000 in assets at Bank of America or Merrill Edge, you’ll earn 25% more rewards. At $50,000 in assets, you’ll boost your earnings by 50%. With $100,000 in assets, you’ll get 75% more rewards. That’s the equivalent of 2.63 miles for every dollar spent. For high net worth individuals, this card offers higher earning potential than some of the best cards with fees.

Priceline RewardsTM Visa® Card

When traveling abroad, you need a credit card with Chip + PIN technology and no foreign transaction fees. Many international merchants, hotels, and restaurants can accept the more common Chip + Signature technology featured on U.S. credit cards, but automated kiosks at train stations and other travel hubs require the PIN technology. Thankfully, the Priceline RewardsTM Visa® Card has the required technology, and it doesn’t charge foreign transaction fees. Plus, you’ll earn a few rewards when you spend with this card. It’s not the best credit card for earning rewards, but it’ll save your money and your sanity when you’re abroad.

No Fee for International Travel

Priceline Rewards™ Visa® Card form Barclaycard

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Priceline Rewards™ Visa® Card form Barclaycard

Annual fee
$0
Rewards
5 points on eligible priceline.com purchases, 1 point on all other purchases
APR
15.99%-25.99%

Variable

Credit required
excellent-credit

Excellent

The Starwood Preferred Guest® Credit Card from American Express®

Starwood points are among the most valuable points on the market. They are transferable to many airlines, and you can even trade 1 Starwood point for 3 Marriott points. Thanks to flexibility in transferring and redeeming points, this is our favorite card for earning free hotel stays. Many users can get at least 2.5 cents per point in value on their redemption.

Triple Your Hotel Rewards

The Starwood Preferred Guest® Credit Card from American Express®

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Rates & Fees

The Starwood Preferred Guest® Credit Card from American Express®

Annual fee
$0 introductory annual fee for the first year, then $95.
Rewards
up to 5x points
APR
16.24%-20.24%

Variable

Credit required
good-credit

Good

Best Sign-Up Bonuses

Chase Sapphire Preferred® Credit Card

Earn $500 cash or $625 in travel credits when you spend $4,000 in your first three months. This isn’t the largest sign-up bonus available today. However, the flexible points redemption options and great travel protections make this our top choice for travel sign-up bonuses.

The information related to the Chase Sapphire Preferred® Card has been collected by MagnifyMoney.com and has not been reviewed or provided by the issuer of this card.

Best Travel Bonus - $625

Chase Sapphire Preferred® Card

Annual fee
$0 Intro for the First Year, then $95
Rewards
2 points on travel and dining, 1 point on all other spending
APR
16.99%-23.99%

Variable

Credit required
good-credit

Good/Excellent

Also Consider Also Consider

U.S. Bank Altitude Reserve Visa Infinite® Card

U.S. Bank Altitude Reserve Visa Infinite® Card

U.S. Bank customers with good credit and high spending may qualify for the lucrative $750 travel sign-up bonus with the Altitude Reserve Visa Infinite® Card. You need to spend $4,500 in 90 days to earn the 50,000 point bonus. When redeemed for qualified travel, 50,000 points translates to $750 in travel. The Altitude Reserve Visa Infinite® comes with a hefty $400 annual fee, but most people will make that up easily. The card offers a $325 annual statement credit for travel purchases, complimentary access to airport lounges, and other high-end perks. In addition to offering the best sign-up bonus on the market, it offers some of the most exciting travel perks. This card failed to become first place because of the high annual fee, but for frequent travelers, this is the best card on the market.

TruWest Visa® Signature Card

TruWest Visa® Signature

If you don’t spend much money on credit cards, you can still earn lucrative sign-up bonuses. The TruWest Visa® Signature Card offers a $100 sign-up bonus when you spend just $100 in your first 90 days. You’ll also get a competitive interest rate and no annual fee. The card also comes with secondary auto rental collision damage waivers that can save you money when renting a vehicle. Cardholders only earn 1 point for every dollar that they spend, and points can be redeemed for a penny (or for more when redeemed through the TruWest redemption portal).

Best 0% APR Purchase Credit Cards

21 Months Without Interest

Citi Simplicity® Card - No Late Fees Ever

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Citi Simplicity® Card - No Late Fees Ever

Intro BT APR
0%

promotional rate

Balance Transfer Fee
$5 or 3% of the amount of the transfer, whichever is greater
APR
14.99%-24.99%

Variable

Duration
21 months
Credit required
good-credit

Excellent/Good

Also Consider Also Consider

Citi® Diamond Preferred® Card

Citi® Diamond Preferred® Card

Citi® Diamond Preferred® offers 21 months of interest-free financing. However, Diamond Preferred customers will pay late fees if they make late payments. As long as you make on-time payments, the Citi® Diamond Preferred® makes an excellent 0% intro APR credit card.

When the promo period ends, the Citi® Diamond Preferred® has somewhat lower interest rates than the Simplicity card, but you still don’t want to carry a balance on this card.

Best Balance Transfer Credit Cards

Barclaycard RingTM MasterCard®

In an effort to give big bank customers a community feel, Barclaycard created Barclaycard Ring™ MasterCard®. All members get the same interest rate for borrowing, and members can transfer in with no balance transfer fee. For someone paying off substantial debt, this can be a huge savings. Plus, all members get to voice their opinions on product changes. The Barclaycard Ring™ MasterCard® accepts customers with average credit, so many people who don’t qualify for other balance transfer cards will qualify for this one. Even better, if you qualify, your everyday borrowing rate is 13.99%. It’s not the best rate on the market, but it’s lower than most leading balance transfer cards.

15 Months, No Fee

Barclaycard Ring™ MasterCard<sup>®</sup>

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Barclaycard Ring™ MasterCard®

Intro BT APR
0%

promotional rate

Balance Transfer Fee
0%
APR
13.99%

Variable

Duration
15 months
Credit required
excellent-credit

Excellent Credit

Also Consider Also Consider

Chase Slate<sup>®</sup>

Chase Slate®

Like Barclaycard, Chase Slate® offers an 0% Introductory APR for 15 months on purchases and balance transfers with a $0 introductory balance transfer fee for transfers made within the first 60 days of account opening. However, the card has a higher regular variable interest rate (15.99%-24.74%), 3% foreign transactions fees, and just a 21-day grace period before interest begins to accrue. Other than the fine print, Chase Slate® is a solid balance transfer credit card.

Santander Sphere® Credit Card

A 0% balance transfer, 0% APR for purchases, rewards, and modest interest rates. The Santander Sphere® Credit Card has it all. But the real reason to use this credit card is the 24-month balance transfer period. Even if you have substantial credit card debt, you could pay it all off by the end of the 24-month 0% balance transfer period. The card charges a 4% balance transfer fee, so this shouldn’t be your first choice card (it’s better to use two 15-month credit cards with 0% balance transfer fees). Despite the fee, you should consider this card if you’re committed to paying off all your credit card debt in under two years.

Longest Balance Transfer

Sphere® Credit Card from Santander

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Sphere® Credit Card from Santander

Intro BT APR
0%

promotional rate

Balance Transfer Fee
$10 or 4% of the amount of the transfer, whichever is greater
APR
13.49%-23.49%

Variable

Duration
24 months
Credit required
fair-credit

Average

Also Consider Also Consider

Citi Simplicity® Card - No Late Fees Ever

Citi® Simplicity® Card

Citi® Simplicity® offers just a 21-month balance transfer period, but this card is much friendlier than the Santander Sphere® Credit Card. You’ll never pay late fees with Citi® Simplicity®, and the balance transfer fee is 3% instead of 4%. Citi® Simplicity® has some gotcha fees (like foreign transaction fees and cash advance fees), but it’s designed for ease of use. Take a look if you want a simpler balance transfer credit card.

Best Low Interest (Not 0%) Credit Cards

Elements Financial Platinum Visa® Credit Card

Elements Financial Platinum Visa® Credit Card is close to the perfect credit card. It offers a low everyday borrowing rate, a significant sign-up bonus, and no balance transfer fees. This card is straightforward and easy to use. You have to become a member of Elements Financial Credit Union, but you can easily join online. When it comes to low interest rates for people with average credit, this is our top choice.

No Gimmicks, 9.99% Interest Rate

Elements Financial Platinum Visa® Credit Card

APPLY NOW Secured

on ELFCU’s secure website

Elements Financial Platinum Visa® Credit Card

Annual fee
$0 For First Year
$0 Ongoing
APR
9.99%

Variable

Credit required
fair-credit

Average

Visa® Platinum Card from Trustmark Bank

People with excellent credit can see rates as low as 7.15% with the Visa® Platinum Card from Trustmark Bank. Even if you have fair credit, your rate is only as high as 12.15%. The card isn’t perfect. It comes with a host of late fees, and other problematic fees that could lead to financial trouble. However, the low borrowing rate makes it worth considering, especially for people who don’t qualify for great rates elsewhere.

Great Rates for All

Visa® Platinum Card from Trustmark Bank

APPLY NOW Secured

on Trustmark Bank’s secure website

Visa® Platinum Card from Trustmark Bank

Annual fee
$0 For First Year
$0 Ongoing
APR
7.15%-12.15%

Variable

Credit required
fair-credit

Fair

Tinker Federal Credit Union Visa® Classic

Even people with fair credit can qualify for the Tinker Federal Credit Union Visa® Classic credit card. It’s a straightforward credit card with interest rates between 9.50% and 11.50%, depending on your credit score. The card doesn’t come with special perks or bonuses, but for people with fair credit, this is an excellent unsecured credit card option.

OK for Fair Credit

Tinker Federal Credit Union Visa® Classic

APPLY NOW Secured

on Tinker Federal Credit Union’s secure website

Tinker Federal Credit Union Visa® Classic

Annual fee
$0 For First Year
$0 Ongoing
APR
9.50%-11.50%

Variable

Credit required
fair-credit

Fair

Best Credit Cards for Building Your Credit Score

Discover it® Secured Credit Card

If you’re building or rebuilding your credit score, the Discover it® Secured Credit Card offers your best opportunity to build credit without unreasonable fees. You won’t pay an annual fee, the deposit is reasonable, and the path to a deposit return is automatic. Other secured credit cards have lower interest rates or smaller required deposits. However, the Discover it® offers the tools and insights that you need to increase your credit score.

Best Secured Card for Bad Credit

Discover it® Secured Card - No Annual Fee

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Read Full Review

Discover it® Secured Card - No Annual Fee

Annual fee
$0
Minimum Deposit
$200
APR
23.99% APR

Variable

Credit required
bad-credit
Bad

Also Consider Also Consider

Capital One® Secured Mastercard®

Capital One® Secured MasterCard®

The Capital One® Secured MasterCard® offers deposits as low as $49, and you won’t pay an annual fee. Plus you’ll have access to the CreditWise tools that can help you build your credit. Unfortunately, Capital One doesn’t automatically review your credit use to return your security deposit. This means you will have to call the bank after a year to ask for a credit card upgrade.

The Capital One® Secured MasterCard® offers better benefits than other secured credit cards. For example, you’ll get price protection, free extended warranties, and secondary auto rental insurance. However, your credit limit will likely be so low that you can’t take advantage of these protections at first.

Best Credit Cards for Students

Discover it® for Students

The Discover it® for Students credit card offers reasonable rewards to students who might not qualify for better credit cards. With this card, you won’t pay an annual fee, you’ll have access to credit info, and you can earn up to 5% back in rotating categories. Plus, you’ll have a chance to double your rewards at the end of your first year and earn an extra $20 when you keep your grades up. This is an ideal card for college students who want to improve their credit score.

Discover it® for Students

APPLY NOW Secured

on Discover Bank’s secure website

Rates & Fees

Read Full Review

Discover it® for Students

Annual fee
$0
Cashback Rate
up to 5%
APR
13.99%-22.99%

Variable

Credit required
fair-credit
Fair

Also Consider Also Consider

Journey® Student Rewards from Capital One®

Journey Student Credit Card from Capital One®

Students can earn up to 1.25% cash back when they use the Journey Student Credit Card from Capital One®. The card also comes with no foreign transaction fees, travel perks, and more. As a customer, you’ll also have access to the CreditWise® portal from Capital One®. The portal offers free insights into your credit score and the steps you can take to improve it. The rewards aren’t as good as the Discover it® for Students credit card, but it’s worth a look, especially if you already have a bank account with Capital One.

Best Credit Cards for Business Spending

Chase Ink Business PreferredSM Credit Card

The Chase Ink Business PreferredSM Credit Card offers a huge intro bonus and opportunities to earn triple points. Customers can use points directly with partner airlines, redeem through the Chase rewards portal, or choose a statement credit. With a huge intro bonus and great perks, this makes a great card for business owners who want to earn great rewards for their business spending.

Best Credit Card for Business Rewards

Chase Ink Business Preferred℠ Credit Card

Chase Ink Business Preferred℠ Credit Card

Annual fee
$95
Rewards
3 points per $1 on the first $150,000 spent in select categories each account anniversary year, 1 point per $1 on all other purchases
APR
16.99%-21.99%

Variable

Credit required
excellent-credit

Excellent

Also Consider Also Consider

Capital One® Spark® Cash for Business

Capital One® Spark® Cash for Business

For business owners who want straightforward cash back rewards, the Capital One® Spark® Cash for Business may be the best option. It comes with unlimited 2% cash back. Plus, you can earn a $500 intro bonus when you spend at least $4,500 in your first three months. The Capital One® Spark® Cash for Business makes a lot of sense for business owners who want to give their employees credit cards because they don’t charge to make employees authorized users.

The card does have a $95 annual fee (waived the first year), but any business owner who spends more than $1,000 per month will outearn the Capital One® Spark® Cash Select for Business, which only earns 1.5% back.

Also Consider Also Consider

Ink Business Cash℠ Credit Card

Chase Ink Business CashSM Card

The Chase Ink Business CashSM Card offers 12 months of interest-free financing for business owners. It’s not as long as the intro borrowing period from the Blue BusinessSM Plus Credit Card from American Express, but it is another great option. Right now, you’ll earn a $300 intro bonus when you spend $3,000 in your first three months with the Chase Ink Business CashSM Card. Plus, you’ll enjoy Chase’s famous travel insurance protections on a card with no annual fee. The only drawback to this card is the high everyday borrowing rates and the fees (including a 3% foreign transaction fee and late payment and returned payment fees).

Learn More

A credit card allows you to build a credit score without paying interest or fees, but you shouldn’t open a credit card if you don’t understand how to use it. In our in-depth study of credit card debt, we found that 73.2% of U.S. adults have a credit card, and 58% of them had credit card debt in the last year. That means that a lot of people pay credit card interest each year.

We want everyone to enjoy the benefits of credit card use, but you cannot enjoy the benefits unless you understand the credit card risks. A credit card is a short-term loan. To avoid paying interest on your credit card, you need to pay back the credit card balance on time and in full every month. When you’re prepared to take on that responsibility, open up a credit card.

If you’ve struggled with debt, consider setting guardrails in place for your credit card use. You could use debit cards for all purchases except a small monthly bill (like internet service). This will help you increase your credit score without pushing you to overspend. Some people use services like Debitize to deduct credit card expenses from their checking account as they spend. Both strategies can prevent you from going into debt.

Over time, you may learn about opportunities to borrow money at 0% interest rates, or to earn cash back rewards. However, when you first open a credit card, your primary goal should be building your credit score.

The best type of credit card depends on your credit history and your goals. Many people love credit card rewards. You can earn big sign-up bonuses, or up to 2% cash back on all your purchases when you use credit cards.

Of course, the best credit cards aren’t always the cards that offer the biggest rewards. If you’re trying to pay off debt, you’ll want to look at 0% balance transfer credit cards. People who are new to credit or need to rebuild credit should consider secured credit cards.

Most credit cards have high interest rates. That makes them less attractive for borrowing money in the long term. These days, you can find 0% purchase offers for up to 21 months. Consider 0% purchase cards for times when you have a cash flow emergency or when you want to pay off a larger purchase over time.

The best way to maximize credit card rewards is to take advantage of sign-up bonuses. Credit cards offer bonus rewards worth 10%-30% cash back when you meet a spending threshold. But you need to be careful with this type of strategy.

Deal chasers can end up in serious credit card debt, and they pay more in interest and fees than they earn in rewards. You also may end up paying multiple annual fees on cards you never use.

Low-interest credit cards can be an important part of your financial plan, but you have to be careful when you use them. If you qualify for a 0% APR credit card, consider using that promotional interest rate strategically. Some people use 0% APR rates to even out cash flow for a big purchase. For example, if you need materials for a remodel or new appliances, a 0% loan makes sense. Whenever you borrow on credit cards (even at a 0% rate), you need a plan to pay off the debt before the end of the intro rate. Borrowing money at double-digit rates always hurts. Part of your plan to eliminate debt should involve making more than the minimum payments on your credit card debt, even when the interest rate is at 0%.

Many people keep low-interest credit cards around for emergencies. This is an effective strategy when you’re just getting started or if you have unpredictable income. However, a low-interest credit card does not replace an emergency fund. Everyone can work to save a $1,000 checking account buffer as soon as possible. In time, you may want to save as much as six months of income in cash.

Balance transfers are one of the more complex credit card features. If you have credit card debt or personal loans, you can transfer the balance of an existing debt onto a new credit card. Why would you want to do that? Some credit cards offer 0% introductory interest rates for balance transfers. This means that you can save money on interest payments while you pay down debt.

In our popular guide to becoming debt free, we outline specific ways you can use a balance transfer. Our guidelines help you save money and improve your financial peace of mind.

If you want to use a balance transfer to pay off debt faster, these are the things you should know:

  1. You need to transfer the balance immediately. Balance transfer offers last anywhere from 30 to 90 days after you open a credit card. Take advantage of the 0% interest right away.
  2. You may pay a balance transfer fee. In general, you will pay a 3%-4% balance transfer fee. That means you’ll pay $300-$400 to transfer $10,000 of credit card debt.
  3. You can transfer debt more than once. Most people spend years getting into credit card debt. That means it could take years to get out of debt. You don’t need to pay painfully high interest rates if you can’t eliminate all your debt by the end of the promo period. Instead, make a plan to transfer your debt at the end of the introductory offer. For example, you can use a 15-month balance transfer followed by a 21-month balance transfer to eliminate your credit card debt in less than four years.
  4. Use this calculator to compare personal loans to balance transfers to see which will save you more money.

Credit cards are the best tool for building (or rebuilding) a credit score. They are the only credit option that allows you to build a credit score without paying interest or fees. We’ve seen people build credit scores in the 700s range with just a single credit card.

If you want to build your credit score using just credit cards, follow this strategy. First, identify the type of credit card you should use. Most people open a student credit card or a secured credit card for their first credit account. Look to prequalify for a credit card if possible. Since you want to keep your first credit card open forever, you’ll want to avoid predatory lenders with high fees and unclear contracts. We explain the red flags below.

Once you have a credit card, you’ll want to keep your credit card utilization low. People with the best credit scores typically have utilization rates below 15%. What does that mean? If you have a $200 credit limit, then aim to spend less than $30 per month on your credit card. That doesn’t mean carry a $30 balance from month to month. It means never spend more than $30 on your credit card at one time.

You’ll also need to pay your credit card bill on time and in full every month. This is the easiest way to build your credit score. Keep tabs on your credit score using Credit Karma or a tool offered by your bank. Don’t apply for new credit cards until you have average or good credit.

If you have no credit history, or items in collections, banks will consider you a poor credit risk. That means you won’t get the best credit card perks, and you’ll have high interest. However, people with poor credit shouldn’t be subject to unclear contracts or high fees without merit.

When we read credit card contracts, we’ve noticed that even secured credit cards come with complex fine print that includes:

  • Annual fees automatically added to bills.
  • No opportunity to transfer to an unsecured credit card.
  • User fees.
  • Interest begins accruing immediately (no grace period).

If you’ve got bad credit or no credit, banks like Credit One, First Premier, First Progress, and Continental Finance will target you with fee traps. Most or all products offered by these banks failed MagnifyMoney’s transparency score. If you have a card by one of these banks, shut it down. You don’t need these fee traps. Instead, open a secured credit card from a reputable bank or credit union that is willing to work with you.

Please note: If you’ve undergone bankruptcy in the last year, you may not qualify for secured credit cards from reputable institutions. Rather than choosing a shady lender, wait for a year to open a new credit card.

If you have just a few derogatory marks on your credit, you will probably qualify for secured credit cards that will help you rebuild your credit score.

When you use a credit card responsibly, you’ll enjoy two major perks. First, credit cards help you build your credit. This means you’ll pay less for auto loans or mortgages. It means that landlords will be more likely to accept you as a tenant, and you won’t have to pay deposits for utility bills.

The second perk is protection against fraud. By law, you’ll never pay more than $50 for fraudulent charges on your credit card. However, most credit cards offer an even better perk. They offer $0 fraud liability. Plus, credit card companies monitor your credit card use to shut down fraudulent transactions as soon as they happen.

Debit cards don’t offer that kind of protection. According to the FTC, your bank can hold you responsible for 100% of the losses associated with your debit card if you fail to report the fraud within 60 days.

Debit card liability from FTC.gov.

Most rewards credit cards offer other protections and perks, too. Check your credit card’s guide to benefits to see if you have these amazing benefits:

Price protection – You bought a big ticket item and then found a cheaper price a week later. If your credit card offers price protection, you can get the price difference refunded to your card. Cards that offer this perk usually offer price protection that lasts 30-90 days.

Purchase protection – Protect your items from theft or accidental damage for up to 30-90 days. Credit cards that offer this insurance may require proof of loss or damage. The program also compensates loss only up to $1,000 in most cases. Still, this is a great asset that most people don’t understand.

Visibility to credit score – You need to know your credit score and how to improve your score. Most credit card companies now offer free credit-reporting tools to help you improve your credit health.

Free extended warranties – Never pay for an extended warranty again. Many credit cards will match manufacturer warranties.

Auto rental collision damage waiver – If you don’t have rental protection on your car insurance, you want to rent cars with a credit card that offers primary auto rental collision damage waivers. This benefit will easily save you $20 or more every day that you rent a vehicle.

Trip interruption/cancellation insurance – Was your trip interrupted or canceled due to events outside of your control? Your credit card may refund what your airline, train, or hotel will not.

Lost luggage insurance – Airlines won’t compensate you when they lose your luggage, but your credit card will. Credit cards that offer this perk usually limit loss to $3,000 per person.

Concierge level identity theft resolution services – If you become the victim of identity theft, the biggest cost to you is your time. Some credit cards will resolve all identity-theft-related issues for you.

Access to airport lounges – Some high-fee travel credit cards give you unlimited access to airport travel lounges.

Upgrades on hotel stays – Credit cards offer all kinds of hotel-related perks. You can get everything from free breakfast to discounted room upgrades to elite hotel membership status.

Free checked bags – Some airline cards offer free checked bags. Other cards will refund airline fees up to a set amount each year.

Concierge services – Need help booking tickets or hotels or reserving restaurants? Call the concierge service provided by your credit card. They will provide you with insights and the help you need to make your life easier.

The most common credit card fees are late payment fees. If you pay your bill late by even a day, most credit card companies will automatically assess a fine in excess of $20 (some are as high as $39).

The good news is if you have a history of on-time payments, most banks will waive the late payment fee if you call and ask them.

Other common fees you should consider include:

  • Foreign transaction fees: You’ll pay 1%-3% on every transaction that you make overseas.
  • Returned payment fees: If the check for your payment bounces, you’ll pay a hefty fee in most cases.
  • Cash advance fees: Unless you want to pay $5-$10 to get cash out of an ATM, avoid cash advances.
  • Balance transfer fees: When you transfer a balance, you’ll generally pay 3%-4% of the total balance.
  • Penalty APR: Your interest rate may increase if you make a late payment.

The minimum payment calculation differs by credit card issuer. The most common is 1% of the principal balance plus any interest or fees that accrued in the month (or a set amount, like $25, if the minimum due is very low).

If you look on the back of you bill, your credit card company will provide information on how to pay off your debt in three years or less.

It’s better to make no payment than to make a payment less than your required minimum. If you have multiple credit cards, try to make the minimum payments on the greatest number of credit cards. Don’t pay late on one credit card one month, and then a different card the next month. This will just get you into a game of robbing Peter to pay Paul.

If you truly cannot make the minimum payments, choose which card should go into default. Strategic default will trash your credit score, but it’s better than starving or going homeless.

In the long run, you will need to increase your income and decrease your expenses, so that you can pay off all your debt.

If you use your credit card at an ATM to take out cash, a few things will happen. First, you would be charged a cash advance fee, which is usually about 3%. Second, interest would start accruing immediately, because most issuers do not have a cash advance grace period. And the cash advance interest rate is usually much higher than the purchase rate. Don’t be surprised to see interest rates as high as 24% (or higher).

We do not recommend closing credit cards because it can reduce your credit score. Closing unused credit cards does two things. First, it reduces your total available credit. That increases your utilization, which is bad for your score. Second, the age of your open credit cards helps your score. If you close old accounts, you can hurt your score over time.

However, we recommend closing credit cards from time to time. You may wish to close a credit card that has an annual fee. Before you close a credit card, try to call the bank and ask about a no-fee option.

You might also need to close a secured credit card if your lender will not return your deposit despite your credit score growth.

If you choose to close a credit card, follow these guidelines: Don’t close a credit card if you need a new loan in the next six months. Open a new credit card before you close an existing credit card.

Every credit card application requires a bank to make a hard credit inquiry. A hard credit inquiry will reduce your credit score about 5-10 points in most cases. In general, you only want to apply for one credit card at a time. You should also wait at least three months between applications in most cases.

If you’ve got no credit, bad credit, or fair credit, you may struggle to get approved for a credit card. Instead of applying for tons of credit cards at once, look to prequalify for a credit card. This will keep your credit score up.

NO! Carrying a balance will not help your credit score. This nasty rumor keeps good people trapped in bad debt. You do not need to pay interest to grow your credit score.

Although carrying a balance will not help your credit score, using your credit card will help your score. If you don’t use your credit card, your bank will not report usage to the three major credit bureaus. This won’t help your credit score grow.

As a rule of thumb, you should use your credit card at least once every month. Once you make a charge, you can pay off your bill.

The law requires that any payment amount beyond the minimum due must be applied to the highest APR balance first. Most credit card companies apply the minimum payment to the lowest APR balance first. As a customer, you want to eliminate high APR debt. That means you should make payments as big as possible. The extra amount will always go to the most expensive debt first.

If a bank denies your credit card application, they must explain why they denied your application. However, answers can be frustratingly vague. These are the most common reasons that your credit card application was denied.

  • Bad credit history: If you have items in collections, late payments, auto repossession, foreclosure, or bankruptcy on your credit report, you may not qualify for certain credit cards. A history of defaulting on credit cards makes it particularly difficult to get a decent credit card. However, you can recover from bad credit. These six steps can help you improve your credit score over time.
  • No credit history: You may also struggle to get a credit card if you have no credit history. If you’ve never had a loan or credit card, consider a secured credit card first. You may also have some luck opening up a store or gas station credit card.
  • No evidence of income: Credit card companies need to know that you can pay your bill. If you’re unemployed or your income is sporadic, the company may not extend a line of credit to you.
  • You’re too young: If you’re under 18, you won’t qualify for a credit card without a co-signer. Young adults 18-21 years old may struggle to obtain a credit card, too. We recommend secured credit cards or student credit cards for young adults.
  • You applied for a bunch of credit cards: Applying for multiple credit cards at once sends negative signals to banks. They see someone who is desperate for credit. That means, you have a higher risk of default. Apply for one credit card at a time. Ideally, you should wait at least three months between credit card applications.
Hannah Rounds
Hannah Rounds |

Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com

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Credit Cards, Reviews

FS Build Card Review: Build Credit With This Payday Loan Alternative

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Source: iStock

Credit cards for people with poor credit scores are few and far between, but FS Card is looking to change that with its first product, the Build Card, an unsecured credit card designed specifically for borrowers with subprime credit scores.

If you’re in need of a couple of hundred dollars and your credit score falls below 600, you’re not likely to get approved for an unsecured credit card. You’re considered a subprime borrower — a lending risk to banks, who worry they won’t get their money back.

But when banks refuse to lend to risky borrowers, those consumers turn to more expensive short-term borrowing options like payday loans, auto title loans, and pawn products. Annual interest rates on those products often exceed 300%, according to research from the Pew Charitable Trusts. Paying a high interest rate and a number of additional fees attached to those short-term products can trap consumers in a cycle of debt.

What is FS Card?

FS Card was founded by former Consumer Financial Protection Bureau Assistant Director of Card and Payment Markets Marla Blow in 2014 to fill what she says was a gap in the credit card industry. Blow says she began FS Card when she noticed — after the housing market crashed in 2008 — banks began “pulling back from subprime consumers in a very directed way,” because they were wary of tougher regulations on the financial industry. As a result, those consumers turned to more expensive products like payday loans, she says.

“I wanted to be able to put that consumer into a place where, rather than having to go out and get a payday loan, they could use a credit card,” Blow says. She designed the Build Card to offer subprime consumers access to something that “a lot of our economy assumes is already present” — a rotating line of credit.

Build Card overview

The Build Card is an unsecured credit card for borrowers with subprime FICO credit scores in the 550 to 600 range (on a scale of 300 to 850). The invite-only card charges a variable 29.9% APR. The rate is high for a credit card but about 10 times less expensive than some payday loans. However, it’s not a card you’d want to open unless you are seriously in need of the funds and are looking to build your credit score.

What we like about the Build Card

Payday loan alternative

Ideally, a payday loan is used to meet short-term borrowing needs — to hold you over until you receive your next paycheck. However, Pew research shows the average borrower uses them for five months at a time on average and has to pay an average $55 fee ($95 online) each time they extend the loan, which is what makes these loans so expensive. That’s $275 spent renewing a loan that’s on average $375. Furthermore, Pew research found use them for everyday expenses like groceries, rent, and utilities.With access to a rotating line of credit, borrowers can extend the amount of time they have to repay borrowed money without having to pay renewal fees for a payday loan.

Unsecured credit card for subprime consumers

The Build Card is a rare unsecured credit card for those with poor credit scores. Most cards you can qualify for with a score lower than 600 are secured cards, which require a deposit to secure a credit line. For people who have a few hundred dollars on hand, a secured card is a great way to get access to credit, but many low-income Americans are not in a position to spend that kind of money.

Build your credit score

FS Card reports your activity to national credit bureau TransUnion so you can use the Build Card to improve your credit score if you maintain good credit management habits. Negative activity — like late payments and high credit card balances — will also be reported, so be sure to pay your balance on time and in full each month for best results.

Quick and easy approval process

Because you must be invited to apply for the Build Card, you are prequalified for approval. There is an excellent chance you will be approved for the Build Card, unless something on your credit report has drastically changed between the time FS Card mailed your invitation and when you apply.

No foreign transaction fees

The Build Card doesn’t charge you for using it overseas, so you don’t need to worry about racking up fees for swiping your credit card on vacation.

What we don’t like about the Build Card

Invite-only

As of this writing, the Build Card is invitation only and has more than 50,000 cardholders, Blow says. You’ll have to wait to receive a code in the mail before you can apply for the card online, which is unfortunate for anyone who is in need of short-term funds now.

FS Card selects borrowers using an algorithm to prequalify borrowers with subprime credit scores and sends invitations to potential customers monthly. The algorithm sifts through consumer credit reporting data to identify consumers who have recently done something that reflects better borrowing habits like paying off a payday loan or an account in collections.

Blow tells MagnifyMoney FS Card will offer an open application for Build Card in 2018.

Many fees

This card carries a lot of fees. If you’re trying to build your credit and have the funds to get a secured credit card that doesn’t charge an annual fee or has an interest-free period, you’re better off going that route, as it will be significantly less expensive.

  • Startup & membership fees: It costs Build Card customers $125 simply to open the account. FS Card charges the initial start-up fee ($53) and annual membership fee ($72) on your first statement. Although the card begins accruing interest immediately, Blow tells MagnifyMoney FS Card does not charge Build Card users interest on the start-up fees assessed to the credit card.After the first year, the annual membership is paid in $6 monthly installments, charged to the Build Card.
  • Authorized user fee: If you authorize another person to use your Build Card, you’ll be charged a $12 fee per authorized user.
  • Late/returned payment fee: Don’t miss a payment on this credit card, or you’ll be charged a whopping $35 fee.
  • Cash advance fee: Try your best not to take cash from this credit line — in addition to paying 29.9% interest, you’ll be charged the greater of $10 or 3% of the amount you take.

A $500 limit

If you need to borrow more than $500, you’re out of luck with this card. Everyone who opens a Build Card account starts off with a $500 limit. But remember, that limit is immediately reduced to $375 once you open the card and are charged $125 in fees. That also doesn’t leave you a lot of room to spend, considering it’s bad for your credit score to carry a balance close to your credit limit. Blow says the company may soon offer starting lines above and below $500.

Right now, FS Card checks every month to see if you’re managing the card wisely (read: making payments on time). If you are, you could qualify for a credit line increase to $750 in as soon as seven months. Blow says 59% of Build Card customers have gotten increases so far.

No 0% interest period

This card doesn’t come with an interest-free grace period. It will begin charging a 29.9% APR to your purchases immediately.

No balance transfer

The Build Card doesn’t come with a balance transfer offer, so you won’t be able to use the card as a debt consolidation tool. If you are in a large amount of credit card debt, you could try applying for a personal loan through online lenders like Lending Club or Prosper, which offer personal loans to people with credit scores below 600.

Who is the Build Card best for?

The Build Card is worth opening if you:

  • have a credit score between 550 and 600,
  • are ready to start rebuilding your credit score, and
  • want an alternative to payday loans in the event of an emergency but don’t have the cash on hand to open a secured credit card.

Beware: If your poor credit history resulted from poor spending habits like spending more than you could afford or making late payments, ask yourself if you’re ready to make a change. Opening this credit line won’t help your credit score any in the long run if you don’t.

How to apply for Build Card

You must be selected to apply for the Build Card. When you receive your invitation to apply, you’ll be given an offer code and application ID to enter into the application form on the Build Card website. Enter that information, your ZIP code, and the last four digits of your Social Security number to apply for approval. You should know if you’re approved or not within a few minutes.

Source: thebuildcard.com

Alternatives to the Build Card

Features

Build Card

Visa® Classic from Georgia's Own Credit Union

Discover it Secured Card

OpenSky Secured Visa

Credit One Bank® Platinum Visa® for Building Credit

Type of card

Unsecured

Unsecured

Secured

Secured

Unsecured

Set-up fee

$53

None

None

$35

$0

Annual membership fee

$72

$5

None

$35

$0 to $75 first year. $0 to $99 thereafter

APR

29.9% (variable)

12.99% to 17.99%
(variable)

23 .99%
(variable)

18.39%
(variable)

16.99% to 24.99%
(variable)

Minimum deposit

N/A

N/A

$200

$200

N/A

Ability to upgrade to on unsecured card

N/A

N/A

Yes

Yes

N/A

Balance transfer APR

N/A

12.99% to 17.99%
(variable)

10.99% for
6 months,then 23.99%
(variable)

$200

N/A

Balance transfer fee

N/A

$10 or 3%

3%

N/A

N/A

Cash advance APR

29.9% (variable)

12.99% to 17.99%
(variable)

25.99% (variable)

18.39%
(variable)

18.90% to 25.90% (variable)

Cash advance fee

$10 or 3%

3%

$10 or 5%

$6 or 5%

$5 or 8%

Authorized card user fee

$12/user annually

No additional charge

No additional charge

No additional charge

$19/year

Foreign transaction fee

None

2% of the transaction

None

3% of the transaction

None

Late payment fee

$35

Up to $37

Up to $37

Up to $27

Up to $37

Reports to all three major credit bureaus

Yes

Yes

Yes

Yes

Yes

Perks

None

None

Earn 2% cash bock at restaurants or gos stations up to $1,000 each quarter.

Earn 1% cash bock on alI other credit card purchases.

No credit check; checking account needed to apply

None

Brittney Laryea
Brittney Laryea |

Brittney Laryea is a writer at MagnifyMoney. You can email Brittney at brittney@magnifymoney.com

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Credit Cards

Bank of America® Premium Rewards® Credit Card Review: Rewards for High Spenders with a BofA Relationship

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Updated October 5, 2017

Bank of America is joining the premium rewards card category with the new Bank of America® Premium Rewards® Credit Card. This card boasts a 50,000-point sign-on bonus and a much lower annual fee ($95) than comparable cards, making it a great way for consumers to earn rewards at a low yearly cost. There are additional perks for Bank of America account holders that will allow you to earn a higher rewards rate, making this card a great choice if you have an account with Bank of America and are looking for a premium rewards card.

We believe that everyone should be able to earn at least 2% cash back, without paying a fee (thanks to Citi® Double Cash Card). If you have over $20,000 in a Bank of America checking, savings, or investment account, you will be able to earn more than 2%. If you have less (or no relationship balance), it gets more complicated.

Bank of America® Premium Rewards® Credit Card

APPLY NOW Secured

on Bank Of America’s secure website

Bank of America® Premium Rewards® Credit Card

Annual fee
$95 For First Year
$95 Ongoing
Rewards
2 points on travel, 2 points on dining, 1.5 points on all other purchases
APR
16.99%-23.99%

Variable

Credit required
excellent-credit
Excellent

Key insights

  • This card only works if you have a deep relationship with Bank of America. If you don’t have other assets (either in a savings account or investment account), you are better off with a flat-rate cash back card, such as the Citi® Double Cash Card
  • This card is probably not for you:
    1. If you have less than a $50,000 relationship with Bank of America and spend less than $2,000 a month on the card.
    2. If you spend a lot in travel and dining but have less than a $20,000 total relationship balance with Bank of America.
  • This card is for you – and you can earn more than 2%:
    1. If you spend at least $2,000 a month and have at least a $50,000 relationship balance with Bank of America
    2. If you have a relationship balance between $20,000 and $50,000 and spend a lot on travel and dining.
  • The biggest winners are people who have more than $100,000 at BofA (and that can include an IRA at Merrill Edge) and spend more than $3,000 a month on the card. People with this profile can earn up to 3% – which is hard to beat.

How the card works

This card charges a $95 annual fee, which is much less than competing premium rewards cards that have annual fees around $450. But this card competes on value (the amount of cash back you can earn) rather than luxury (you will not get access to swanky Amex lounges, for example).

There is a 50,000-point intro bonus offer, available for qualifying customers. Customers must make at least $3,000 in purchases in the first three months of opening to earn the bonus. This is a feasible amount if you typically charge $1,000 a month.

The amount you earn depends upon your relationship with the bank. Your total relationship includes:

  • How much you have deposited in a checking and savings account. (But beware: interest rates are very low at BofA. Find the best savings account rates here).
  • How much you have invested at Merrill Lynch, which includes Merrill Edge (the self-directed brokerage account that has very competitive fees and commission).

As a cardholder you will automatically earn 2 points per dollar spent on travel and dining and 1.5 points per dollar spent on all other purchases. The more assets you have at BofA, the more points you can earn. Account holders must enroll in Bank of America’s Preferred Rewards program to benefit from these higher rewards levels. See the breakdown below.

We like the concept: BofA is trying to reward their most loyal customers with the best rewards.

The Bank of America® Premium Rewards® Credit Card is most beneficial to those who have $20,000 or more in a Bank of America account. This is a lot of cash for a savings or checking account with low interest rates. However, it’s possible to earn a higher interest rate from your Bank of America account if you roll over your IRA or 401(k) into a Merrill Edge® account. You can learn more here.

The table below shows your effective annual cash back rate depending on your monthly spending and relationship with Bank of America. This first table demonstrates the cash back rate earned for cardholders who are not big spenders in the bonus categories of travel and dining. Monthly spending was allocated at 40% toward travel and dining and 60% on all other purchases. The effective annual cash back rate deducts the annual fee, but does not factor in the sign-on bonus.

As you can see from the table, you won’t see significant return until you have at least a $50,000 relationship with Bank of America and spend over $2,000 a month. This will allow you to earn an effective annual cash back rate of over 2%. From this point on, you will start to see higher cash back earning potential.

Now if you’re a big spender in the bonus categories of travel and dining, you will see higher cash back earning potential at lower relationship levels. For the table below, monthly spending was allocated at 80% toward travel and dining and 20% on all other purchases. Again, the effective annual cash back rate deducts the annual fee, but does not factor in the sign-on bonus.

As you can see from this table, having at least a $20,000 relationship with Bank of America and spending over $3,000 a month allows you to earn an effective annual cash back rate of over 2%. From this point on, you will start to see substantial cash back earning potential.

In conclusion, the Bank of America® Premium Rewards® Credit Card is a good option if you are an affluent account holder at Bank of America and prefer to open a premium rewards credit card from the same bank as your savings account. If you plan on moving your IRA or 401(k) to Merrill Edge®, you will benefit from a higher interest rate.

How to qualify

To qualify for this card you will need excellent credit. The higher rewards levels for Bank of America checking, savings, and investment accounts with large amounts of money target affluent customers. Therefore, you will also need to have a steady job, which will show that you are responsible and can pay your bills.

What we like about the card

Large sign-on bonus

This card offers a 50,000-point sign-on bonus when you spend $3,000 in your first three months of account opening. This a reasonable amount of money to earn the large sign-on bonus, and lower than competing cards.

Reasonable annual fee

This card charges an annual fee that is significantly lower than competitors who can charge upward of $450 a year. The low annual fee allows you to enjoy more of the rewards you earn.

Bonus for Bank of America account holders

If you have a checking, savings, or investment account with Bank of America, you will benefit greatly from the additional points you earn. Higher tier points depend on the amount of money you have in your account and can increase your rewards potential significantly.

Unlimited higher rewards rates

You will benefit from the higher rewards rate for travel and dining without any caps. This means you don’t have to worry about hitting a predetermined dollar value and then being downgraded to a lower rewards rate.

What we don’t like about the card

Must be a Bank of America account holder for higher rewards rates

To earn more points per dollar spent you need to be a Bank of America account holder with a checking, savings, or investment account. If you don’t have an account, you will still earn the 2 points per dollar on travel and dining and 1.5 points per dollar on all other purchases, but can find a better deal with a flat-rate card such as the Citi® Double Cash.

Who the card is best for

This card benefits affluent Bank of America account holders with a checking, savings, or retirement account balance over $20,000 at the bank. If you fall in this category, your loyalty to Bank of America will be rewarded with the higher tiered rewards levels that allow for high rewards earning potential. In addition, this card has one of the lowest annual fees for premium rewards cards on the market and offers a large intro bonus.

Alternatives

There are multiple combinations of savings accounts and credit cards that you can use to maximize your savings. In the table below we compared the Citi® Double Cash Card, the Chase Sapphire ReserveSM card, and the Citi ThankYou® Premier card paired with a typical online bank savings account to the Bank of America® Premium Rewards® Credit Card.

Note that the Citi ThankYou® Premier card waives the annual fee in year one. Also, we listed the effective annual fee for the Chase Sapphire ReserveSM card; assuming you spend $300 in travel a month, the $450 annual fee would be an effective $150.

Savings Account

Typical
online bank

Typical
online bank

Typical
online bank

Bank of America

Credit Card

Citi® Double Cash

Citi® Double
Cash

Chase Sapphire Reserve®

Chase Sapphire
Reserve℠

Citi ThankYou®

Citi ThankYou®
Premier Card

Bank of America

Bank of America
Premium Rewards®

Average Deposit Balance

$100,000

$100,000

$100,000

$100,000

Average Monthly Card
Spending

$8,000

$8,000

$8,000

$8,000

Travel and Dining

$4,000

$4,000

$4,000

$4,000

Everything Else

$4,000

$4,000

$4,000

$4,000

Savings Account Interest
Rate

1.15%

1.15%

1.15%

0.06%*

Interest Earned on
Savings

$1,150

$1,150

$1,150

$60

Rewards Rate

Travel

2

3

3

3.5

Dining

2

3

2

3.5

Everything Else

2

1

1

2.6

Cash Back Earned

$1,920

$1,920

$1,680

$2,928

Bonus Offer

$0

$500

$500

$500

Annual Fee

$0

$150

$95

$95

YEAR 1: Cash Back +
Interest Earned + Bonus

$3,070

$3,420

$3,330

$3,393

YEAR 2: Cash Back +
Interest Earned

$3,070

$2,920

$2,735

$2,893

*.06% interest may be available if you roll over an IRA or 401(k) into a Merrill Edge® account.

From this table we can draw several conclusions:

  • The Citi® Double Cash Card paired with a typical online bank savings account will earn you the most money at year’s end.
  • A typical online bank earns you the most interest compared to the other savings accounts.
  • The Bank of America® Premium Rewards® Credit Card will earn you the most cash back, but coupled with the low interest rate from the Bank of America savings account, you will fall short of earning as much money at year’s end as Citi® Double Cash or Chase Sapphire ReserveSM cards paired with a typical online bank  savings account.

To sum it all up, if you want to earn the most money at year’s end, the best option would be the Citi® Double Cash Card paired with a typical online bank  savings account. The high interest rate that a typical online bank offers coupled with the card’s flat-rate cash back rewards are what make this the most profitable pairing. The Bank of America® Premium Rewards® Credit Card lures consumers in with the higher tier rewards levels for affluent account holders, but offers a low interest rate for those accounts that ultimately hinders your year-end earning potential. However, if you transfer your IRA or 401(k) to Merrill Edge, you will earn a higher interest rate than a typical Bank of America savings account and can make up some of the difference.

Here’s an overview of the alternative cards:

Citi® Double Cash Card – 18 month BT offer

Annual fee

$0*

Cashback Rate

1% when you buy, 1% when you pay

APR

14.49%-24.49%

Variable

The Citi® Double Cash Card is a flat-rate cash back card that will earn you a consistent cash back rate. You will earn 1% when you make a purchase and an additional 1% when you pay your bill. This card has no annual fee unlike the Bank of America® Premium Rewards® Credit Card or the other alternatives. Keep in mind this is a cash back card, so you will not be earning points that can be redeemed for travel. Cash back comes in the form of a statement credit, deposit, check, or gift card. Paired with a typical online bank savings account, this card will earn you the most money at the end of the year (excluding year one), beating the Bank of America® Premium Rewards® Credit Card by $177 in subsequent years. Refer to our chart above for a detailed comparison.

 Chase Sapphire Reserve<sup>SM</sup>

Annual fee

$450 For First Year

$450 Ongoing

Rewards

3X points on travel and dining, 1 point on everything else

APR

16.99%-23.99%

Variable

This card comes with several great perks that make it a stand-out favorite among frequent travelers. Each account anniversary year, Chase automatically gives you $300 in statement credits as reimbursement for travel purchases you make throughout the year on your card. This lowers the $450 annual fee to an effective $150. You will also benefit from a 50% rewards boost when you redeem for airfare, hotels, car rentals, and cruises through Chase Ultimate Rewards®. For example, 50,000 points are worth $750 toward travel. The Chase Sapphire ReserveSM is a great alternative if you are a frequent traveler and want a higher redemption value for your rewards.

The information related to the Chase Sapphire ReserveSM Card has been collected by MagnifyMoney.com and has not been reviewed or provided by the issuer of this card.

Citi ThankYou® Premier Card

Annual fee

$95, waived for first 12 months*

Rewards

3X on travel, 2X on dining and entertainment, 1X on all other purchases

APR

15.49%-24.49%

Variable

This card is a good alternative if you want a card that offers a high rewards rate for travel, dining, and entertainment. If you’re not a Bank of America account holder, you will earn a higher rewards rate on travel and entertainment with the Citi ThankYou® Premier card. Citi also charges an annual fee, but this is waived the first year. Keep in mind that you will fall short of earning as much money at the end of the year with this card compared to the Bank of America® Premium Rewards® Credit Card (by approximately $63 in year one and $158 in subsequent years). Refer to our chart above for a detailed comparison.

FAQ

This card will be released in September 2017.

Yes, anyone can apply for this card. Keep in mind, an excellent credit score is needed to have the highest approval odds.

No, there are no limits to the amount of points you can earn in each category. That means you will consistently earn the higher rate for travel and dining, regardless how much you spend.

Alexandria White
Alexandria White |

Alexandria White is a writer at MagnifyMoney. You can email Alexandria at alexandria@magnifymoney.com

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Credit Cards, Reviews

Chase Sapphire Reserve Review: Is the Annual Fee Worth It?

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

Looking for a travel rewards card with a big bang for your buck? Chase Sapphire ReserveSM may be right for you.It comes with a litany of benefits for frequent travelers including:

  • 3 points per dollar spent on travel and dining.
  • 1 point per dollar spent on anything else.
  • Your points are worth 50% more when you redeem through the Chase Ultimate Rewards® portal.
  • Ability to transfer your points on a 1:1 basis to major airline and hotel rewards programs.
  • $100 statement credit after you pay for your TSA PreCheck or Global Entry application.
  • The first $300 you spend on travel during each 12-month period measured by your sign-up date will be automatically reimbursed through statement credits.
  • Currently, you can get 50,000 bonus points when you spend $4,000 within three months of opening your card.

These benefits do come at a cost. The card has a $450 annual fee — and it is not waived in the first year. While the benefits are top-notch, they’re only accessible to those who can float the $450 in upfront costs.

Chase Sapphire ReserveSM

Annual fee
$450 For First Year
$450 Ongoing
Rewards
3X points on travel and dining, 1 point on everything else
APR
16.99%-23.99%

Variable

Credit required
excellent-credit

Excellent


The information related to the Chase Sapphire ReserveSM and Chase Sapphire Preferred® has been collected independently by MagnifyMoney and has not been reviewed or approved by the issuer.

How to earn points

The best way to earn points with Chase Sapphire ReserveSM is by placing all of your travel and dining purchases on this card exclusively. These purchases will get you 3 points for every dollar spent on travel or restaurant dining, while all other purchases will get you a less competitive return of 1 point per every dollar spent.

What, exactly, qualifies as a travel purchase? The obvious things, like hotels and car rentals, are included. But don’t forget merchants like Airbnb, Expedia, or even your state DOT when you drive on toll roads.

Certain travel-related expenses do not count as travel purchases. Amusement park tickets, excursions purchased directly through tour companies, and that Starbucks latte you purchased at the airport will not be counted as a 3-point-per-dollar travel expense, for example.

If you’re making a big purchase, but you’re not sure if it will qualify as a travel expense, it’s worth it to call the company you will be purchasing from. You want to find out how they are coded to credit card companies. Do they come through as “travel” or is the business classified into another category? Finding the answer to this question can help you decide if you should make the purchase on your Chase Sapphire ReserveSM or if you should charge it somewhere else where you’ll get more than one measly point per dollar.

Best ways to redeem points

Whether you’re purchasing a plane ticket for a work trip or booking your next family vacation, you want to make sure you’re maximizing all those points you’ve earned.

One of the best ways to redeem your points at booking is by using the Chase Ultimate Rewards portal. Here, you’ll be able to find flights, hotels, and more with no blackout dates. Because you’re a Chase Sapphire ReserveSM holder, your points will be worth 50% more here. That means that instead of your 50,000-point bonus being worth $500, it will actually be worth $750.

Another potentially great way to book is by transferring your points to one of Chase’s partner airline or hotel rewards programs. This can be done in real time on a 1:1 basis. Sometimes, it may even be a better deal than booking through Chase’s Ultimate Rewards portal.

For example, a flight from New York City to Tokyo may run you $1,200. If you booked within the Chase Ultimate Rewards portal, that would cost you 80,000 points.

However, if you transferred your points to United MileagePlus® miles, you could score a flight for 70,000 points if you booked at the “Saver Award” level in economy class. There is limited seating at this award level, so you would want to book far ahead, but doing so would save you 10,000 points.

Chase Ultimate Rewards has several transfer partners aside from United. The full list includes:

  • British Airways Avios
  • Flying Blue (Air France/KLM)
  • Korean Airlines Skypass
  • Singapore Airlines Krisflyer
  • Southwest Airlines Rapid Rewards
  • United MileagePlus
  • Virgin Atlantic Flying Club
  • Hyatt Gold Passport
  • IHG Rewards
  • Marriott Rewards/Ritz Carlton Rewards

How to qualify

Those with the best chance of qualifying for Chase Sapphire ReserveSM will have a credit score of 700 or above without a history of chronically late payments. Those with a credit score below 650 are unlikely to qualify.

This card is only for people with excellent credit. In general, that means your score should be above 700. In addition, Chase (and other credit card issuers) have been cracking down on people who go from one bonus offer to the next. If you apply for a lot of credit cards, don’t be surprised if you are declined.

What we like about the card

There are a lot of reasons to love Chase Sapphire ReserveSM if you’re big on travel.

The bonus is nothing to laugh at.

Fifty thousand points is on the high end of standard spending bonuses for credit cards, but when you book through the Ultimate Rewards portal, Chase’s offer is even more stellar.

Your annual fee is effectively lowered to $150 every year.

Because you will receive up to $300 in statement credits for travel reimbursements per year, the $450 annual fee is effectively lowered to $150 — as long as you actually spend $300 on travel.

Rewards points are generous on dining and travel purchases.

Three points per dollar is a large multiplier in the world of travel rewards credit cards.

No foreign transaction fees.

When you’re traveling, the last thing you want to deal with is foreign transaction fees. They can quickly eat away at any value you’re getting with your rewards points, so we’re glad to see that this card doesn’t have any.

Additional $100 statement credit specifically for Global Entry or TSA PreCheck.

Both of these programs can save you a ton of time and hassle, especially if you travel frequently. The $100 statement credit reduces or even eliminates the application fees, depending on which product you pursue.

Plentiful travel protection benefits. When you book your travel with your Chase Sapphire ReserveSM card, you automatically have a lot of coverage as long as 100% of the purchase goes on the card. Coverage includes:

  • Auto rental collision damage waiver. You won’t have to purchase collision insurance from your rental company as physical damages to the vehicle will be covered by this waiver provided via Chase.
  • Roadside assistance. You’re covered up to $50, four times per year. Covered services include locksmiths, tows, tire changes, jump-starts, and gas.
  • Baggage delay insurance. If the airline has issues locating your luggage at your destination airport for six hours or more, this insurance policy will reimburse you for essential purchases, like shampoo or slacks. The policy maxes out at $100 per day over the course of five days.
  • Lost luggage reimbursement. What if the airport never finds your bag? Or damages your belongings? Chase will reimburse the value of your belongings up to $3,000.
  • Trip cancellation/interruption insurance. Certain emergencies, such as severe weather or illness, will merit a reimbursement of up to $10,000 if they force you to cancel or cut your trip short.
  • Trip delay reimbursement. If your flight is delayed for over six hours and the airline is offering little to nothing in the way of reimbursement, Chase will pay you back $500 per ticket to cover things like food and hotel stays.
  • Emergency coverages. Chase provides coverage for emergency evacuations, emergency medical and dental services, and accidental death or dismemberment while you’re on a trip that you’ve paid for 100% with your Chase Sapphire Rewards card.

What we don’t like about the card

While Chase Sapphire ReserveSM’s rewards are out of this world, they do come at a steep price.

The annual fee is colossal.

A $450 annual fee is huge—especially since it is not waived in the first year. This limits the number of people who will even be able to afford to open a card, nonetheless justify the expense.

Rewards points are scant on everyday purchases.

While this card is generous with rewards points for dining and travel, purchases in every other category only earn 1 point per dollar. Even when you account for the 50% bonus when booking through the Ultimate Rewards portal, it would be wise to put these purchases on one of many other cards on the market that will earn you more points.

Travel hackers will have a hard time qualifying.

Banks (and not just Chase) are making it more difficult for people to jump from bonus offer to bonus offer. If that sounds like you, it will probably be difficult to get approved.

Who the Chase Sapphire ReserveSM best for

Those who travel frequently, spending a good portion of their budget on related purchases including dining, will benefit most from this card. These applicants have a solid credit history and score and are more likely to have a higher income as they have the funds available to front the $450 annual fee without hurting their budget. Their travels enable them to get the most out of not only the rewards points but also the statement credits that make this offer so attractive.

Chase Sapphire ReserveSM vs. Chase Sapphire Preferred® Card

If you have the $450 to spend up front, and know that you will be able to take advantage of the annual $300 travel reimbursement, Chase Sapphire ReserveSM is likely a better card for you than the Chase Sapphire Preferred® Card.

While the Chase Sapphire Preferred® Card’s annual fee of $95 is waived for the first year, in subsequent years its annual fee is only $55 less than the Chase Sapphire ReserveSM’s effective $150 fee after travel reimbursements ($300 Annual Travel Credit – $450 annual fee).

For an additional $55, your Chase Sapphire ReserveSM points are worth 1.5 points each when you book through the Ultimate Rewards portal versus the Chase Sapphire Preferred® Card’s 1.25 points. Let’s look back at our trip from New York City to Tokyo. With the Chase Sapphire ReserveSM, you would need 80,000 points to book your $1,200 flight. With the Chase Sapphire Preferred® Card, you would need 96,000 points. That’s a 16,000-point difference. In order to make up the difference, you’d have to spend $6,400 on travel or dining on your Chase Sapphire Preferred® Card.

Fifty-five dollars starts to look like a deal.

You also earn 3 points instead of the Chase Sapphire Preferred® Card rate of 2 points on each dollar you spend on travel and dining.

Given the increased point values, making up the $55 difference is easy. Having the income to support opening the Chase Sapphire ReserveSM in the first place is the challenge. Not only do you need to have $450 on hand up front, but you’ll also need to have an income that justifies a credit line of $10,000+. If you will have trouble achieving either of these things, the Chase Sapphire Preferred® Card may be a better card for you.

Alternatives

While Chase Sapphire ReserveSM offers fantastic benefits, it’s not for everyone. If you want a credit card that offers travel rewards without such large impositions, you do have other options.

 Chase Sapphire Preferred® Card

Annual fee

$0 Intro for the First Year, then $95

Rewards

2 points on travel and dining, 1 point on all other spending

APR

16.99%-23.99%

Variable

Chase Sapphire Preferred® Card is much like the Chase Sapphire ReserveSM option, except its $95 annual fee is waived for the first year. It doesn’t have all the same perks, but it does offer 2 points per dollar spent on dining and travel while offering 1 point on all other purchases. When you redeem points in the Ultimate Rewards portal, they’ll be worth 25% more instead of Reserve’s 50% incentive.

Barclaycard Arrival Plus® World Elite Mastercard<sup>®</sup>

Annual fee

$89 - waived first year

Rewards

2X miles on all purchases

APR

16.99%-23.99%

Variable

While the bonus in the Ultimate Rewards portal is attractive, earning 1 point per dollar spent on everyday purchases is not. The Barclaycard Arrival Plus® World Elite Mastercard® offers 2 miles per dollar spent on any purchase, which may make it more valuable for those planning one or two trips per year rather than getting away every other month for work or leisure. The annual fee is waived in the first year, and it currently comes with a 40,000-mile bonus when you spend $3,000 in the first 90 days. The Barclaycard Arrival Plus® World Elite Mastercard® also gives you back 5% of the miles you redeem. For example, if you redeem 40,000 miles, you’ll get 2,000 back.

Capital One® Venture® Rewards Credit Card

Annual fee

$0 intro for first year; $95 after that

Rewards

2 miles per dollar spent

APR

13.99%-23.99%

Variable

Similar to the Barclaycard Arrival Plus® World Elite Mastercard®, the Capital One® Venture® Rewards Credit Card offers 2 miles per dollar spent on any purchase, with each mile worth one cent when redeemed against a past travel purchase. The annual fee is waived in the first year, and the current sign-up bonus is 50,000 miles when you spend $3,000 on purchases within the first three months.

FAQ

Yes, though you should keep in mind the credit requirements above. If you currently have Chase Ultimate Rewards points, it’s wise to transfer them to the Reserve so you can take full advantage of the 1.5-point redemption rate in the Ultimate Rewards portal.

Yes. As long as you share the same address, you will be able to transfer points one to another instantaneously. You cannot combine or share points with a family member who lives at a different address.

No. Once you transfer points to another program, you cannot convert them back to Ultimate Rewards points. Be sure you understand the redemption process for each program before you transfer to ensure you’re getting the maximum value for your points.

No. As long as you keep your account open, your points will not expire. If you have other Chase cards that are eligible for the Ultimate Rewards program, you could close your Chase Sapphire ReserveSM account and transfer them to your other card, but as of today Chase Sapphire ReserveSM offers the best redemption rate in the Ultimate Rewards portal, so this may not be the best move.

Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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