Choosing a new rewards credit card is a confusing process. There are hundreds available and the credit card issuers are constantly flooding your mailboxes, on and offline, with new offers and enticing sign on bonuses.
My actual offers from just the past month!
With all the craziness, I've narrowed down the 3 things you must consider before clicking that "apply" button and opening a new card.
1. Bonus categories and merchants
Without a doubt - this is the most important thing to look for in a new credit card. The best thing to do is understand which categories and merchants the majority of your spend goes to each month.
This is so important because if you apply for a card with bonuses that don't meet your spending, you're going to be earning less rewards with the card that is actually right for you. Let's look at a real example:
The Jetblue Plus Credit Card is an amazing card that earns frequent fliers on Jetblue 6x the points for every dollar spent on Jetblue flights, in addition to 2x on groceries and dining. We value Jetblue points at 1.8¢ each when redeemed for flights, so that means you're getting 10.8% back on Jetblue purchases and 3.6% back on your grocery and dining purchases.
But here's the caveat. I don't fly Jetblue. It's not that I don't want to - I used to exclusively fly with them when I lived on the East coast - but now that I'm in San Francisco, other airlines are cheaper for my typical travel.
Grocery and dining are two of my biggest expenses. But even if I applied for this card, I'd be missing out on rewards since it would be hard for me to redeem them after I accrue the points every year.
2. Annual and foreign transaction fees
Easily the next most important thing to consider after bonuses are the fees associated with the card. Depending on your spend, most annual fees can be offset through the rewards you earn. But there is some math to be done in order to determine if you meet this threshold or if you would be earning more rewards with a card that offers no annual fee (or waived year 1).
If you're traveling internationally, you should have at least 1 card that doesn't charge you a foreign transaction fee. If you're traveling and your card issuer charges you 3% on top of the purchase amount, it can add up really quick. Let's say you travel to Spain and spend $2500 for two weeks between hotels, food and drink, entertainment and travel, that trip now cost you an extra $75. Most branded airline cards, hotel cards or travel cards no longer charge foreign transactions fees, but it's a must to consider if you have any plans to travel overseas.
3. What do you want to redeem your rewards for?
Once you've racked up a ton of points or miles - check out this guy who earned 10 million United miles! - you'll want to redeem them, and there's no shortage of stuff you use your hard earned rewards on. My personal favorites: free flights and hotels. But it's all a matter of what YOU want! The six most common redemption options are:
- Car Rentals
- Cash Back
- Gift Cards
- Shopping Credit
When choosing a new rewards card, make sure the card gives you flexible reward options or the ability to redeem for the rewards you want. The last thing you want to do is to get stuck with thousands of reward points or miles and be unhappy with the redemption options.
The one catch here - reward values change depending on the reward type. American Express Membership Rewards points are worth different values when you redeem for gift cards or flights, and it's typically the travel options that have the highest value. It gets even more complex when you consider that your United MileagePlus points are worth different amounts if you redeem for two different flights from the same city.
At the end of the day, this isn't a comprehensive list of factors that impact whether or not the card is right for your wallet, but these are things you must look at it if you're in the market for a new card. Other things like bonus tiers, dining and shopping portals, spending thresholds and more can determine whether or not the card is right for you.
And lastly, if you want a free tool that does all these crazy calculations and makes recommendations for you in just a matter of seconds, try out Birch!