September 19, 2017

How to Select the Best Credit Card

Best Credit Card

By now the bills from Christmas spending have arrived, and many households are burdened by credit card balances that seemed so promising when the application arrived in the mail. Unfortunately, none of them have a feature stipulating you don’t have to pay.

Lots of articles steer you to the best credit card by categories–one if you want airline miles, another if you need to transfer a balance and a third if you are looking for the lowest interest rates. This is not one of those articles. The millionaire mindset does not want airline miles and doesn’t carry a balance. And the sooner you start thinking like a millionaire, the sooner you will become one.

Principle number 1: The credit card company’s job is to make as much money as possible, and your job is to keep as much money as possible. They are very good at their job. Principle number 2: The defaults should all be in your favor. Avoid any credit card that requires you to work against them. They will win, and you will forget to do some important piece of work.

Putting these principles into practice, here are the five key features to look for in a credit card.

No annual fee. No amount of rewards and bonuses can make up for an annual fee. If you start $75 in the hole, you have to spend $7,500 and get 1% cash back just to break even. No annual fee for the first year isn’t enough for whatever rewards are offered.

As much cash back as possible on everything I purchase. Forget every other system of rewards. With immediate cash back, you are definitely getting something valuable. And you don’t have to decide to use the rewards; they are simply deposited in your account. In the best of all scenarios, they are deposited into a savings or brokerage account.

An immediate 1% cash back on every purchase is the minimum you should settle for. The best I have seen is if you can get 2% on everything. Many cards entice you with 3% or 5% on specific purchases during certain months within limits when you remember to register. I’m too busy running a business to deal with such foolishness. Just give me the money. Don’t make me ask.

Purchase protection, free extended warranty and return protection. If you’ve had a store that has not given you a fair deal and then given you a hard time, having made the purchase with a credit card can often help. If the original U.S. warranty is 5 years or less, some cards increase the warranty by up to a year. And credit cards often allow you to return anything purchased in the United States within 90 days from the date you bought it regardless of a store’s policies.

In addition to these features, making purchases with a credit card can save you a tremendous hassle because a process is in place for disputes. We bought a digital camera that was supposed to come with a larger memory card as part of a promotion. But when it was delivered, the card was not included. The store refused to honor the original agreement until we disputed payment on the entire purchase. After that the memory card was sent immediately and our dispute was resolved.

Onetime-use credit card numbers. This feature, called “ShopSafe” by MBNA, allows you to create a unique temporary credit card number every time you make an online purchase. This number acts exactly like your real credit card number except it has a lower limit and a quick expiration date. For example, if you are purchasing a $35 item, you can create a temporary number with a $40 credit limit that expires in two months.

Merchants won’t know the difference, but if their lack of security compromises the number you use, the thieves will find themselves with $5 more credit on a card that may already be expired.

Easily downloadable information. Entering every transaction into a budget by hand is a great way to create good spending habits. But once those have become routine, it is still wise to know what you have spent without all that manual labor. Many credit cards allow you to download a file and import it directly into Quicken or other budgeting software. Purchases from your usual vendors are automatically coded into their proper budgeting categories. Only new vendors need to be assigned a category.

My primary credit card had all of these features, including 2% cash back deposited directly into my investment account at the end of each month. Unfortunately, that card is no longer available, and the company recently reduced the cash back to 1%. The Fidelity American Express card, however, offers 2% cash back deposited directly into your Fidelity account. I have applied for that card. Here are some other cards that come close to approximating that deal:

With no annual fee, the Chase Freedom Visa returns 1% of all purchases. Like many other cards, it has a 5% limited cash back on rotating categories if you remember to sign up every quarter. The best gimmick is that they offer $200 cash back through a limited-time promotion if you have excellent credit and spend $500 in the first three months. Remember, it is just a come-on to get you to sign up. But for $200 it is at least worth the time.

Other credit cards to consider include the Blue Cash Credit Card from American Express, the Citi Dividend Platinum Select MasterCard and the Discover Card. For a list of sites where you can find these cards and others, visit our website at www.emarotta.com/credit-cards/.

Some consumer credit card advocate sites may receive cash payments if you sign up for a credit card through their website. Any recommendation comes with the caveat that to maximize profits, credit card companies remove the best features. But to stay competitive, others add new features. This competition is OK, but it means you must verify these recommendations to see if they are still reasonably good.

Credit card companies know that people have an irrational loyalty to their first card. That’s why they market college students so heavily. You may feel attached to your current credit card, but believe me, the credit card company feels no such allegiance to you.

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About David John Marotta

David John Marotta+ is the Founder and President of Marotta Wealth Management, Inc. He played for the State Department chess team at age 11, graduated from Stanford, taught Computer and Information Science, and still loves math and strategy games. Favorite number: e (2.7182818...)

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