By Emily McCluhan
Cash back, miles, rewards, spending categories, the world of credit cards — and the perks that come with them — can seem endless, which makes choosing the right card a game of research and strategy.
REAP THE REWARDS
Jen Hanson, senior vice president of operations at Park Bank, says the best place to start exploring new credit cards is by estimating your monthly spending. Are most of your charges occurring at grocery stores, dining out or on travel? Knowing where your money goes can help guide you when looking at all of the reward options.
“Next, decide what your goals and drivers are for the type of card you’re choosing,” says Hanson. “Are you trying to earn miles towards a trip? Apply cash back to your statement balance? Use points with online retailers? Or just bank the rewards in your savings account? Knowing your goals before you start card shopping makes the process much easier.”
If earning cash back is a driver, Hanson says to be aware of the framework and requirements for maximizing the benefits. Some credit cards offer a flat percent cash back, while others have tiered categories, or a higher percentage cash back for categories that rotate each quarter.
“Many companies require you to activate those higher point categories and you may only have a certain amount of time to do that; if you don’t select them, you may be leaving money on the table,” she says.
Often cards with high reward levels, like automatic status with airlines and hotels, come with an annual fee. So, how do you know if it’s worth it? Hanson says to lean into the spending estimates you’ve done. If based on your spending you’ll earn enough rewards or cash back to cover the fee, go for it. Otherwise, the lower reward rate is likely a better option.
Also, consider other less tangible features that may be important to you: “Tap to pay” options, ease of use in the company’s app or website for tracking spending, or security and fraud protection. One feature that Hanson says she’s seen a shift in over the last few years is how joint account holders are handled.
“A joint account holder gets the benefit of positive reporting into the credit bureaus for their own credit when the card is used responsibly,” says Hanson. “Many cards these days only offer authorized users, which means only the account holder gets those positive benefits. Be intentional about requesting joint status when adding others to your account.”
With so many options, Hanson suggests starting with a credit institution where you already have an account, especially if you’ve had the same type of card for a few years. There may be new products and perks available.
“And it may limit the impact to your credit score since your institution likely already has your credit information. The more often your credit report is pulled, the higher chance that your score is lowered, which can trickle down to other unintended consequences,” she says, noting higher interest rates and lower credit limits as examples.
Ultimately, finding the right credit card may take some homework, but the perks and a better understanding of your spending will likely pay off in the end.