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Saturday, July 29, 2006  

My Credit Card Pick

When I started working full-time I decided that it was time to stop just using my debit card and get my own credit card to start building a credit history. I think many people end up with whatever card they got an offer for in the mail, but you can really impact your finances by choosing a good credit card. Since I knew I would be paying my card off every month I didn't care so much about the interest rate, for me the most important factor would be the benefits I would get from my card. And of course that there was no annual fee - if you are paying an annual fee on any banking or credit accounts you are getting ripped off.
There are four basic types of rewards you can get from a credit card:
    Airline Miles: These are very popular cards but are almost never a good deal. There are so many rules and restrictions and you have to spend so much money to be able to get a ticket this is only a good card to get if you fly on the same airline every week. For most young people this is not the case - if you are flying that much it's probably through your job and they're paying for it.

    Store-Specific Rewards: I'm not talking about cards that are issued to you through the store (such as a sears card, banana republic card, etc), I'm talking about the new breed that are visa or mastercards but earn points towards one specific place. An example is the Amazon Visa Card. These vary a lot in how good a deal they are, but they mostly serve as fun bonuses. With the amazon visa card you get a $25 amazon gift card for every $2,500 spent on the card (your rate is slightly better if you're spending at amazon). So if you are an amazon fan and you are spending that much on your credit card anyway then it's not a bad card to get. BUT you have to be careful to avoid the trap of spending more than usual to get "free stuff" from amazon. (Hint: it's not free if you spent an extra $2,500 to get it!)

    Gifts Rewards: These are the cards where you earn points with every purchase that you can redeem for various gifts. An example of this is the Citi Diamond Preferred Rewards Card. The rewards include everything under the sun from concert tickets to home furnishings. In my opinion this is not a good choice because you are basically getting JUNK that you didn't even get to pick out. Yes you will have a list of their choices to pick from, but wouldn't you rather just have cash to buy what you want? Which leads me to the best type of rewards program . . .

    Cash-Back Rewards: For almost everyone this is the best type of credit card to chose. You get a percentage of your spending (usually between 1 and 5 percent) back in cash to do whatever you want with. The downside is there is a cap to the amount of cash back you can receive in a year, but hopefully you aren't spending that much to begin with! Having a credit card that doesn't give you cash back is passing up free money.

The credit card that I ended up picking is the Citi Dividend Mastercard. (You can view a list of their various cash-back cards here. The card gives me 1% back on all purchases and 5% back on gas and groceries. If you are looking for a way to build credit and you drive a car getting this card and just using it for gas would be a wise way to go. Citi also has a merchant network where you can get higher percentages back at a large number of online stores (overstock, gap, target, urban outfitters, saks), a feature I took advantage of for holiday shopping. After researching online cite dividend was my pick for the best deal on a credit card, and so far I've earned $60 cash back.

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