When you’re trying to pick a cash back credit card, what do you look for? Sometimes the answer isn’t always clear.
It’s easy to see 5% cash back and get excited, but what if it’s 5% cash back on wholesale clubs like Costco or Sam’s Club? If you don’t belong to any of those stores, 5% isn’t that valuable.
When picking a cash back credit card, you need to find one to match your lifestyle.
I run most of my purchases through credit cards. Over the years, I’ve built up what I think is a damn good wallet. Each credit card I own fits into the lifestyle we’ve built over the years and I’ve never missed paying the balances in full.
We’ve received hundreds, if not thousands, of cash back over the year on three different credit cards. Anything that can be paid with a credit card finds its way into our credit card balances.
If you don’t think you can handle a credit card or you’ve had bad experiences in the past, this article may not be for you. However, if you have any desire to try again if you only knew what to look out for, I encourage you to read on.If you're looking for a cash back credit card, find one that fits your lifestyle. Click To Tweet
In this article, I want to explain what I look for when applying for a credit card. You don’t need to be an expert to pick the right credit card for your lifestyle. Simply put, you can watch out for a handful of things and find a great credit card for your daily life.
1. Don’t worry about the interest rate.
Unless you’re planning on carrying a balance or transferring a large balance to a new card, don’t worry about the interest rate. If you’re like me, you’ll be paying the balance in full and the interest rate won’t effect you.
This isn’t great advice for everyone. I wouldn’t recommend this to someone with massive credit card debt.
Although I enjoy lower interest rates, I hardly even look at the rates on my current credit cards. If you asked me what my interest rates were, I couldn’t even tell you.
That’s why I’m encouraging you to not even think about it. Your interest rate should never come into play because you simply use the card for necessity. And if you’re not living paycheck to paycheck, paying off the balance shouldn’t be a problem.
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2. Find a card to fit your credit score.
Your credit score matters. Credit card companies won’t give their best cards to people with low credit scores. If your credit score is poor, you’ll want to start monitoring your credit and increase your credit score over time.
If your credit score is decent, start researching to find credit cards where you’ll likely be approved. Credit Karma’s credit card comparison list will give you estimates on the credit score required. Use this tool to build a list of cards you want to apply for.
Spend some time on this. There are popular cards like Chase Freedom, Discover It, and American Express Blue Cash. However, these credit cards aren’t for everyone.
You may not get approved for the cards you want. Don’t let that get you down. Save your list of credit cards for the future. As you use your credit cards responsibly, your credit score will increase.
Remember, you can always close credit card accounts and apply for new ones. Doing a little research now will make the process easier in the future.
3. Think about where you spend the most money.
If you’re already keeping a detailed budget, this step is easy. If you’re not, you have some work to do.
Before applying for a credit card, you need to figure out your available opportunities. Where can you get the most cash back? Chances are, you spend a significant amount on groceries. If you spend $400 on food for your family, that’s $4,800 per year.
If you can find a credit card with 5% cash back on groceries, that’s $240 in cash back every year.
My wife and I use the American Express Blue Cash Preferred for groceries. If we’re shopping at a grocery store, the purchase is swiped on that card. The card has an annual fee, but you still make money if it fits your lifestyle. Granted, if you eat mostly at restaurants, this card would be a waste of money.
Finding a card to fit your lifestyle is important. You want to get a decent return on your money.
4. Your credit history may restrict your credit limit.
For some of you with no credit card history, your credit limits may be low when you first start applying for new cards. Over time, your credit limits will increase with responsible use.
You can also start reading credit card forums for credit limit hacks. Companies like American Express have an easy process to request credit limit increases. Over the years, people have started to document their process.
For example, I was able to increase my credit limit by three times by following the advice of others.
5. Option #1: Cash Back on All Purchases
When you’re shopping for credit cards, you’ll come across cards like Capital One’s Quicksilver card. These are cards offering you unlimited cash back on all purchases. However, the cash back rate is usually rather low around 1%-1.5%.
Credit Cards with Cash Back on All Purchases
- Capital One Quicksilver
- American Express EveryDay
- Citi Double Cash
- Chase Freedom Unlimited
These credit cards have never interested me. Although we buy all groceries, gasoline, and pay most of our bills with a credit card, 1.5% cash back seems low. For example, to receive $450 cash back, you need to run $30,000 through the card.
These cards may work for some of you though. If you have a bunch of random purchases throughout the year, you might be able to make it work.
6. Option #2: Cash Back on Quarterly Categories
These credit cards seem to be popular with everyone. If you’ve seen the Chase Freedom or Discover It, you know what I’m talking about.
Credit Cards with Cash Back on Quarterly Categories
- Chase Freedom
- Discover It
- Citi Dividend
With a card like this, you have to look at the categories for each three month period. For example, at the time of writing this, Discover It is offering 5% cash back on gas, transportation, and wholesale clubs.
When you’re thinking about picking one of these credit cards, you must look at all of the categories for the year. Also, you may want to look at categories for the previous year. Make an estimate of how much you spent in those categories and do the math.
If you won’t be able to take advantage of most of the categories, these cards may not work for you.
7. Option #3: Better Cash Back on Certain Categories
I love these types of cards. I’ve been using them for years.
My personal favorite is the American Express Blue Cash Preferred. It’s hard to beat 6% cash back on groceries and 3% cash back on gasoline. Although some people have said goodbye to the Blue Cash Preferred, I’m sticking with it.
Credit Cards with Better Cash Back on Certain Categories
- American Express Blue Cash Everyday
- American Express Blue Cash Preferred
- Bank of America Cash Rewards
Other credit cards in this category include the Bank of America Cash Rewards card. This card gives you 1% cash back everywhere, 2% back at grocery stores, and 3% on gas.
For most of you, a card like Blue Cash or Cash Rewards should work. If you often find yourself at grocery stores and you do a lot of driving, you can’t go wrong here.
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8. If you travel, look for a credit card which fits your travel frequency.
Finally, you should think about travel. Does your family travel often? By often, I mean multiple times per year. If you only travel once or twice, I wouldn’t even consider a travel focused credit card.
For example, I once considered trying to apply for a Platinum card. The card gives you $200 in airline credit and access to airport lounges around the world. The card comes with a hefty $450 annual fee as well. Obviously, if you fly once a year, this card is simply not worth it.
On the flip side, if you find yourself traveling every month, you may want to consider looking around. There are plenty of travel cards out there. Finding one to fit your typical travel agenda might save you some money.
Don’t pick a credit card for status. Pick a credit card to fit your lifestyle. If your card gives you cash back at pet food stores and you never shop there, there’s a problem.
Use your budgeting skills to find spending categories with opportunity for cash back. Common categories are groceries, gasoline, and travel.
You should always take advantage of free money. Much like 401k employer matches, credit cards provide an opportunity to save money on purchases you already make every month. Plus, credit cards give you better protection over cash or a debit card.
When picking a new credit card, take your time. Recognize you’ll be using this new credit card for many years. Much like saving for retirement, the value of a credit card adds up over time. Earning $250 cash back every year for 10 years adds up quickly.
[Featured Image Credit: Unsplash / Jeremy Paige]