How to Decipher Credit Card Advertising
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There are hundreds of credit cards available with all sorts of different terms and rewards. Wading through them to figure out which one to sign up for can be a complicated and frustrating process. One card might seem to offer a large cash back percentage, but look at the fine print and there's a dollar limit where if you exceed it, the cash back percentage drops significantly. Others will offer a tempting sign up bonus, but you have to pay a hefty annual fee. (See also: Best Credit Cards With No Annual Fees)
If you need help sorting out the marketing from reality, here's a quick primor on what to look for when you're reviewing those credit card offers.
This is the main reason you'd want a credit card. It just doesn't make sense to be using a credit card that you're not getting rewards on (except, of course, if you carry a balance, in which case, no amount of rewards would make up for the interest you're racking up). Rewards generally come in the form of cash back, miles towards travel, or points for other types of redemption (for example, merchandise or gift cards). The baseline rate on most credit cards for rewards is 1% cash back or 1 mile/point per dollar spent. The difference between rewards cards will show up in the ways you can get "bonus" points. For example, one card might offer 5% cash back on groceries. Another might offer 2 miles for airfare purchases. One way to choose a credit card is to find the one that offers bonus rewards for the category you already spend the most on. For frequent flyers, that would probably be airfare. For families, that might be groceries. (See also: Best Credit Cards for Dining Out)
This is one of those things usually in the fine print. Cash back credit cards usually have a cap on the amount of cash back you can earn in the bonus categories. Rewards credit cards that offer points and miles don't have earning caps as often, but some may, so always check! You may not be getting what you expect if you spend a lot in the bonus categories. In some cases, it might make sense for you to choose a card that offers a lower bonus, but without earning caps. You'll have to do the math.
You might be really excited about cashing out the first $20 you've earned in cash rewards, only to find that the minimum redemption amount is $35. Depending on what you plan to use the rewards for, and when you need them, you want to make sure to choose the card with the redemption requirements that suit your needs.
Cash back rewards are pretty straightforward. You usually either opt for a statement credit or a check/direct deposit. However, when it comes to the world of miles and points, redeeming can be extremely difficult. You might have chosen a travel rewards card because you want to get a big discount on your yearly overseas trip. But you might find that the miles you've racked up don't transfer to the airline you want, or doesn't offer award seats for the country you want to fly to. Know what you're going to be using those points or miles for, before you get stuck with a ton of them you can't even use. (See also: Which Airline Loyalty Program Has the Best Value for Their Miles?)
The credit cards that offer big bonuses on popular categories are usually the ones with the annual fee. Bigger benefits usually come with a higher price tag. Now don't write off a credit card just because of its annual fee. Lots of people have credit cards with annual fees and they get more than enough rewards to pay for that fee. It depends on your spending habits, and whether you are going to take advantage of those extra benefits. Again, do the math.
Foreign Transaction Fee
This is something to be aware of if you use your card internationally. Many cards will charge a 3% foreign transaction fee to your purchases. If you travel a lot, you should consider a card that has a low or zero foreign transaction fee.
Beyond points, miles, and cash, a credit card can offer many benefits. For travelers, perks like lounge access and priority boarding is invaluable. For shoppers, purchase and price protection can save a bundle. Don't just stop at the bonus categories and sign up offers. Check out the entire list of benefits a credit card has to offer. (See also: 13 Awesome Credit Card Perks You Didn't Know About)
Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any bank, card issuer, airline or hotel chain.