728x90 AdSpace

Latest News
March 8, 2015

Welcome to The Jungle of Consumer Credit Cards

By EconMatters

In our technology-dominated world, credit card has become an indispensable and convenient financial transaction instrument.  Americans are notorious in racking up sizable credit card debt. This 'enjoy now, pay later' philosophy has trapped a lot of consumers paying at double-digit interest rate for credit card debt.

The revenue stream of card issuing companies typically comes from two main sources: transaction fee paid by the merchant and outrageous interest and fee charged to consumers for carrying a balance.  So in essence, credit card companies depend on consumer spending to make their money.

However, similar to cell phones and computers, the credit card industry is also getting commoditized. To differentiate and lure consumers, credit card companies have come up with so many incentive, bonus, point programs that could make your head spin.

Since I don't subscribe to the practice of standing in line outside of the Apple Store just to get the latest i-products, that means I could be a bit behind the curve on some things such as credit card.  In my 30 years of living then working in the U.S. the only rules I had in regards to credit card is to keep no more than 2 cards, and never carry a balance for more than 6 months.  Realizing I may have missed out on the latest (better) offers, and since I have managed to maintain a reasonably good credit history, I decided to give my credit card portfolio a makeover mid last year.  I'm going to share some of my experience in the credit card jungle.

My screening process was simple:
  • Since I'm not a road warrior, mileage credit card does not provide as much benefit.  
  • I personally do not believe in the 'pay-back period' for credit card annual fee (some credit cards justify annual membership fee by offering higher rebates, points, etc. in that you earn more than enough to offset the annual fee).  After all, credit card companies already are making money on transaction fees, I don't see the logic of paying them additional fee just for the 'privilege', as I indicated before, credit card industry is pretty much commoditized.
  • Money in pocket is better than 'points' in bank - That means a preference of straight cash-back rebate cards to points-for-gift-or-goods cards.    
  • Spending Pattern, e.g., Kroger (NYSE; KR), Amazon (NYSE: AMZN), eBay (Nasdaq: EBAY) , Aliexpress (NYSE: BABA), occasional international travel, etc.  
After some research and comparison, it became apparent that in order to maximize cash rebates, meaningful benefits (to me), and sufficient credit cushion (for emergency) I'd need more than 2 cards.  So I established a new limit of a manageable (to me) 5-card portfolio, and ended up with the following 5 credit cards:
  1. Kroger 123 Rewards Visa - This is a card program through US Bank (NYSE: USB) with 2% cash back on Kroger (NYSE: KR) spending (excluding Kroger fuel) where I do grocery shopping and get gas, and 1% on all non-Kroger purchases.  Since I tend to forget taking those annoying frequent shopper cards with me, part of the reason I picked this Visa is to take advantage of its unique convenience to encode my Kroger Plus shopper number (also to get Kroger fuel discount) on the back of card. 
  2. Barclay SallieMae MasterCard - 5% back on the first $250 spent on grocery, gasoline, and the first $750 on books (Amazon) each month.  1% on all other purchases.  This card through Barclays (NYSE: BCS) does not have as comprehensive member benefit package as the 3 cards below, but does offer top rebates on several recurring monthly spending categories of mine.     
  3. Chase Ink Cash Business Visa - 5% rebate on Cable, Phone, Cell Phone, Office Supply, Internet Access, 2% on gas stations and restaurants, 1% on all other spending, plus access to Chase (NYSE: JPM) Small Business network.   
  4. Citi Double Cash MasterCard - I converted my old Citi ATT Universal Visa to this new program of Citi to get 2% cash back on all purchases (after paying bill in full each month).  Citi (NYSE: C) has one of the most comprehensive card member benefit packages out there including Citi Price Rewind, Worldwide Car Rental Insurance, Worldwide Travel Accident Insurance ($250k), etc.  Citi also has one of the best customer service, and online banking systems I've ever seen.  
  5. Discover IT - I converted my old Discover Card to this program with rotating 5% bonus category each quarter, and 1% cash back on all other spending.  Although its rebate may seem lackluster, Discover is one of the very few credit cards in the U.S. that does not charge a foreign transaction fee.  Discover (NYSE: DFS) also has a very good program when redeeming rebates for gift certificates.  
Chase, Citi, and Discover all have a pretty vast network of popular online shopping merchants to get even more rebates when shopping through their portals.  I also opened an account at eBates.com (privately held) to further the rebate benefit since I do shop online a lot.  These 5 cards are of the no-strings-attached type, which is my preference.  For example, Fidelity (NYSE: FNF) has a 2% rewards AmEx card program, but it requires a Fidelity account.  I did not pick AmEx (NYSE: AXP) simply because it is not as widely accepted as Visa or MasterCard.  I also opted to skip any retail card, e.g., Banana Republic (NYSE: GPS) Visa, etc. since the rebate in this type of retail program is typically gift certificate redeemable only at the store with far less member benefit than the 5 card issuers listed above.

Another thing I learned is that when switching to a different program within the same credit card company, all the existing profile info including credit limit, etc. simply gets transferred over without a new credit check affecting your credit FICO score.

I did end up with an unexpected sixth credit card when my AC unit broke in the middle of a brutal Texas summer last year.  I had to replace the entire unit which is no chump change.  So I took the AC company's 12 months no financing charge offer getting a card with Synchrony Bank (NYSE: SYF, formally part of GE Capital).  From this experience, I realize just how important it is to maintain a good credit score through the best credit check within your capability just to have sufficient financial resource for the unexpected.

In my case, the Synchrony Bank credit card helped with an emergency expense that I may not otherwise have the immediate resource for.  Of course, I will do my best to pay it off in 12 months and do not carry the card in my wallet at all.  Why? Because the true intention with this card program is that although it is interest free for the first 12 months on the balance from the initial AC bill, the expectation is that I'd use the card to charge more spending on top of the initial balance and that's when the card company may charge me double-digit interest rate.

The consequence of applying for more cards and spreading my regular spending into 5 cards is that my FICO score did get a hit.  However, I think in time FICO will get over it, and I get a lot more bang out of the many recurring expenses now running through those 5 cards.

In short, underneath it all, when it comes to credit card, the best policy is 'living within your means' and try your darnedest to pay off the balance each month or as quickly as humanly possible.  Winning the financial game is very tough, but getting credit cards under control while maximizing card benefits requires discipline and goal planning, and is just as important as managing your investment portfolio.  

© EconMatters All Rights Reserved | Facebook | Twitter | Email Subscribe | Kindle

  • Blogger Comments
  • Facebook Comments
Item Reviewed: Welcome to The Jungle of Consumer Credit Cards Rating: 5 Reviewed By: EconMatters