best rewards credit cards

Best Credit Cards Rewards – How Does Yours Compare?

Over the years, I’ve simplified my credit-card usage to just a few reward cards. My main goal was to rake up rewards as much as possible, without having to remember a complex algorithm to decide which card to use when.

Not that I’m too stingy and trying to collect changes, but I dislike leaving money on the table, especially when a couple of one-time habit-changes/steps can increase annual cash-flow by at least several hundred dollars, if not more. At the same time, neither I nor my family members (additional card-holders) are inclined to carry a lot of cards together with a mini-manual. I use cards heavily for over 80% of my total expenses (notable exceptions being the property tax and a few small recurring/annual payouts).

I wanted to share what I do and also get input from others as to what they follow:

  1. All gas purchases anywhere are with a card from penfed.org. 4.25% or more cash value depending on how one redeems
  2. All travel-related expenses and restaurant/dining-out are with Costco Citi Visa card): 3% cash-back
  3. [Under Consideration] Amazon Prime Visa card (5% cash-back), given our increased purchase from Amazon.com
  4. Fidelity Card for most everything else (including #3 at this moment): 2% cash-back

Notable choices made:

  • I used to have a Shell card for 5% cashback at gas stations, but discontinued it since this is available only at Shell gas-stations
  • The switch from AMEX to VISA has simplified this further as AMEX is still not accepted in a few merchants we use
  • Stopped using “rotating reward category” cards (e.g., Chase gives 5% on 3 category of expenses, but the categories change frequently).
  • I prefer getting cash or equivalent as reward than “in-kind”, due to the flexibility
  • I learnt that x% reward does not necessarily mean x% cash. The reward points may be diluted depending on what is being redeemed
  • I noticed that over the last few years, many online payments, including most utilities, are now accepting credit card auto-payments without any extra fee. Previously only a bank account was possible.
  • I’ve left the other cards as is, and use them sporadically if needed (e.g., foreign travel)

What do you think? Anything you’d like to share from your experience?

Credit Card Statement Balance

Understanding Your Credit Card Statement Balance

Credit Card Statements are Logically Organized

Like a lot of financial paperwork credit card statements seem to come at you with a lot of information, but if you know how to read them then you’ll find that they have lots of useful information organized in a logical way.

Credit Card Statement Balance Summary

Your credit card statement will have a summary of your account’s activity for the past month.  Following is an example of how it’s organized along with an example of what each line item means.

Description

Amount

Explanation

Previous Balance (or Beginning Balance)

$1,880

This is the ending amount from your prior credit card statement that carries over to the current month.  In other words, it should be equal to the “New Balance” on your lastcredit card statement.[1]

Less: Payments and Credits

($225)

This is the amount you paid on your credit card the prior month.  It can also have miscellaneous credits such as refunds from store returns.

Add: Current Charges

$375

This is the total amount of your credit card purchases during the past month (which ties to the “Summary of Current Credit Card Charges” below).

Add: Finance Charges

$20

This is the current month’s interest that you owe on your outstanding credit card balance.

Add: Fees and Penalties

$10

This is where charges will show up for things such as annual fees, late payment fees, penalties for exceeding your credit limit, etc.  If you don’t understand why you were charged this amount then contact your credit card issuer.

Equals: New Balance (or Ending Balance)

$1,060

This is the sum of your outstanding balance from the previous month ($1,880), less payments you made ($225), plus interest and fees ($20 and $10), plus amounts charged for the month ($375).  The total ($1,060) represents the amount you would need to pay in the current month to settle your credit card balance in full (though you can pay less than that all the way down to the minimum payment which is described below).

Summary of Current Credit Card Charges

In addition to summarizing the activity in your account, your credit state statement will provides details for all of the charges that you made in the past month.  Examples of such charges are as follows.

Description

Amount

Explanation

Crash and Bash Auto

$245

This was a one-time charge to cover a car repair.

See-it-Again Movie Rentals

$20

This is a recurring monthly charge for a subscription-based movie rental service.

Forgotten Fine Dining

$55

You charged this amount at a restaurant, but you’d forgotten about it until you got your credit card statement.

Phantom Industries Nonrecurring Charge

$40

This is a charge that you don’t recognize.  You should search your records to determine what it is and, if you can’t figure it out, you should call the company (their number or website should be on the credit card statement).

Nasty Surprises Incorporated

$15

This is a charge from a company you recognize and have dealt with in the past, but for reasons you don’t understand they’ve charged you unexpectedly.  You should call the company to find out why.

Equals: Total Charges for the Month

$375

This is the sum of the above amounts, and it ties to the “Current Charges” line on the “Credit Card Statement Summary” above.

Rewards Summary

If you have a rewards credit card where you accumulate points, flight miles, or other incentives then you should see a summary of your rewards activity on your statement organized something like this:

The minimum payment and the due date

Your credit card will always show you your minimum payment, or the lowest payment the credit card issuer will accept by the due date without penalizing you according to the terms of your credit agreement.  Depending on terms of your credit agreement you can expect your minimum payment to be between 1% and 4% of your current balance.  So based on the figures in the example above if your minimum payment percentage was 3% then you would have to pay at least $32 by the due date in order to avoid late payment penalties ($1,060 x 3% rounded up to the nearest dollar).  Again, you can always pay more than the minimum payment, but you have to pay at least that much.

3 Key Things to Look for When Examining Your Credit Card Statement

Now that you understand the fundamental of reading your credit card statement I want to reemphasize 3 points that I alluded to above.

  1. You should recognize all vendor charges – Nobody should charge your credit card unless you give them express permission to do so.  Thus if you see a charge from a company you don’t recognize, you should follow up to see if it’s legitimate.
  2. Vendor charges should be accurate – Once you’re sure that nobody unexpectedly charged your credit card, you should then make sure that you were billed the right amount for each transaction. If not then you should find the paperwork for the applicable charge(s) and contact the company directly to resolve the problem (their phone number and/or website should be on your credit card statement or the receipt from the transaction).
  3. Your credit card company’s charges should be correct – You should understand both the rationale and amount behind all credit card interest, fees and charges.  If you see anything that look unusual, inappropriate, inaccurate or excessive then don’t hesitate to contact your credit card issuer to get some answers.


[1]  To further illustrate, if $1,880 was the “New Balance” or “Ending Balance” on your November credit card statement it should also be the “Previous Balance” or “Beginning Balance” on your December credit card statement.

How to Use a Credit Card Effectively

Understanding How to Use a Credit Card Responsibly Can Increase Your Credit Score!

The Ideal: Pay Your Credit Card Balance Each Month in Full and On Time

At its core a credit card is simply a means of borrowing money.  It’s also important to understand that a credit card is an exceptionally lousy means of borrowing money if you carry a balance.

Thus any credit card strategy in that doesn’t also involve paying off your balance in full and on time each month is, at best, of limited value and, at worst, downright stupid.  In short, how to use a credit card effectively entails you pay off your credit card balance each month then you can reap significant benefits from making purchases with a credit card.  However, if you consistently carry a balance from month to month then your credit card issuer is the one reaping the benefits (at your expense!).

For example, let’s say that you need to buy a plane ticket that costs $1,000.  You have both a credit card and $1,000 in the bank that you could use to make the purchase.  Should you pay in cash or use your credit card?  If you use the cash then you can purchase the ticket outright without incurring any credit card debt.  Of course that’s good, but if you purchase the same $1,000 ticket with a credit card then you could automatically receive accidental death and dismemberment (“AD&D”) insurance for the flight as well as 1,000 bonus points or flight miles.  Further, when your credit card statement comes the next month you can use the $1,000 you have in the bank to pay it off in full.  So either way you’ll end up with no credit card debt, but if you pay in cash you’ll get no special benefits whereas if you pay with a credit card you’ll get valuable insurance for the flight with credit card bonus points to boot.

Second Prize: Make Purchases With a Credit Card as Long as You are Able to Steadily Reduce Your Debt

While it would of course be great to have your credit card fully paid off, what if you’re not in a position to do that right now?  Does that mean that you should lock your credit card away and only pay for things in cash until it’s fully paid off?  Not necessarily, because you can still benefit from making purchases with a credit card as long as you’re disciplined enough to continue to make meaningful progress towards paying down your credit card debt.  Understanding how to use a credit card effectively may vary from situation to situation.

Danger: How To Use A Credit Card Negatively By Using Rewards & Points as an Excuse to Pile on Unsustainable Debt

While it’s true that paying by credit card offers some unique advantages that paying with a check, a debit card or cash does not, I want to again emphasize that you should never use the benefits you receive from paying with a credit card as a means to rationalize making purchases you can’t afford.  For example, don’t talk yourself into buying a $1,000 plane ticket you can’t afford just because you’re going to get a few credit card bonus points or flight miles. If you choose to go down that road then it won’t take long before the deadly math behind credit card interest threatens to make financial bondage your destination.  The Fidelity credit card has one of my favorite reward programs.

Summary: Credit Cards are Great Financial Tools if Used Correctly

There’s a myth among some that only those who are irresponsible, addicted to spending, or deeply in debt use credit cards on a regular basis.  While there are some who do indeed fall into one or more of those categories, it’s also true that those who understand the benefits of making purchases with credit cards and pay off their balances each month use credit cards to make practically every purchase they can.


How Do Credit Cards Work

How Do Credit Cards Work?

A Credit Card is a Means to Borrow Money

How do credit cards work?  When you boil it all down a credit card is simply a convenient means to borrow money.  In other words, when you use a credit card to pay for something it’s not really you that’s paying for it; the credit card issuer (the bank or financial institution that issued you the credit card) is paying for it.  That means when you use a credit card to make a make a purchase the seller is happy, because they get their money.  However, the transaction isn’t over as far as you’re concerned because now you owe the credit card issuer.  In summary, when you use a credit card you’re borrowing money from the credit card issuer pay for things, and then you’re obligated to pay off your credit card balance.

Payment Options

When answering “How do credit cards work?” keep in mind your credit card issuer obsesses over how much money you owe them.  Without fail every month they’ll send you a credit card statement listing each of your charges as well as any unpaid balance that carried over from the previous month, and then they’ll then offer you payment options.  On the high end you can opt to settle all of your outstanding charges by paying your credit card balance in full.  On the low end you can make the “minimum payment,” the lowest amount the credit card issuer will accept without penalizing you according to the terms of your credit agreement.  Finally, if you can’t pay off your credit card in full but you can make more than the minimum payment then you are free to do so.

Some credit cards will charge you interest starting from the time you make a purchase (I’m not a big fan of these credit cards).  Fortunately, however, most credit cards won’t charge you interest (or “finance charges”) on your purchases as long as you pay your monthly balance in full and on time and you don’t have any carryover charges from the previous month.  Said another way, credit card charges are generally interest free as long as you pay your balance in full and on time. Related Article: Improve Your Credit In 5 Easy Steps.

Credit Limits

How Do Credit Cards Work Credit LimitYour credit limit is the maximum amount of debt that you can charge to your credit card.  For example, if you have a credit limit of $5,000 then you can either make a one-time purchase of $5,000 or you can make a combination of smaller purchases equal to the same amount.  You’re said to have “maxed out” a credit card when you reach your credit limit, meaning that you can no longer make any purchases with it until you’ve paid down your balance.  In other words, if you charge $5,000 one month and then pay your balance down to $4,000 then you charge another $1,000 until you reached your $5,000 credit limit.

Sometimes your credit limit is automatically set by the credit card issuer.  For example, they might say, “Here’s a credit card and, based on your salary, credit history, etc., you can charge up to $5,000.”  Alternatively, you can ask for a certain credit limit when you apply for your credit card (or you can ask for the credit limit to be increased for a card you already have).  Either way, you should not make purchases that would exceed your credit limit.

What happens if you do exceed your credit limit?  First of all, you may not be allowed to in the first place.  Remember, whenever you buy something with a credit card it’s run through a payment processor (or it will be verified online if you’re making an Internet purchase).  Thus if you attempt to exceed your credit limit your purchase may be denied.  However, if you do happen to make charges that exceed your credit limit then your credit card issuer will likely charge you penalties for doing so.

Cash Advances

In a typical credit card transaction you’re paying for things, but you never actually take possession of any cash.  For example, if you use a credit card to buy a computer for $1,000 you never take physical possession of the $1,000; that money is paid directly by the credit card issuer to the computer vendor.  However, in addition to using a credit card to charge purchases, you can use it to get a cash advance.  This can be accomplished in one of three ways.How Do Credit Cards Work Cash Advance

  1. You can use your credit card to get cash from an ATM (contact your credit card company if you don’t know your card’s PIN).
  2. If your credit card was issued by a nearby bank you then you can go to one of their branches in person and get cash directly from a bank teller who will charge it to your credit card.
  3. Finally, you can get a cash advance from your bank in the form of a cashier’s check (but again, it has to be the bank that issued the credit card).

Benefits – How Do Credit Cards Work With Cash Advances?

The benefits of the first two options are obvious; you can use your credit card to actually get cash.  But why would you want to use your credit card to get a cashier’s check?  To illustrate, my wife and I once had a car suddenly die on us.  After some searching I found a used car that we had enough money set aside to pay for.  The problem was that I couldn’t access the money immediately because it was in an investment account, and if I didn’t move quickly I was afraid we might lose the opportunity to buy the car.  To solve the problem I went to the bank and got a cashier’s check and charged it against our credit card.  I then used the cashier’s check to pay for the car.  Finally, after the money from our investments became available a few days later I used it to immediately pay off our credit card.  Thus, by using a credit card to obtain a cashier’s check we were able to move quickly on purchasing the car we wanted (which ironically turned out to be a terrible car…but that’s another story).

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Annual Fees

How do credit cards work with annual fees?  Well, some credit cards charge an annual fee and some don’t.  If that’s the case then why would you ever get a credit card that has an annual fee?  Generally you wouldn’t.  However, some credit cards provide special benefits and incentives, and if the value of those benefits and incentives exceed the cost of the annual fee then it’s worth considering.

What’s In It For The Credit Card Issuer?

How do credit cards work for the credit card issuer?  To have a balanced understanding of credit cards it’s important to know what’s in all of this for the credit card issuer.  Well, if you carry a balance on your credit card then it’s pretty obvious: they’re going to make a financial return of 18%-22% on the money they loaned to you.  Ouch!  But what if you pay your balance in full and on time every month and you never owe any interest?  Does that seem too good to be true?  Are you ripping off your credit card issuer, or is it just that they’re lulling you to sleep, waiting to hit you with some hidden fee or penalty?

Well rest easy, because your credit card issuer is making money when you use your credit card whether you carry a balance or not.  How?  For every purchase you make the merchant has to pay about 1%-3% in credit card fees (and sometimes even more on top of that).  As a result, as long as you use your credit card responsibly and pay your balance in full and on time then both you and your credit card issuer are getting something out of the deal: you get a safe, convenient means to borrow money in the short term and they get steady fees from merchants when you make purchases.  It’s when you carry a balance that things get out of whack, because then you’ll pay exceptionally high interest rates, and if you fall behind then a whole train of penalties and interest will follow as well.

Fidelity Credit Card

Fidelity Credit Card Review

The fidelity credit card has a lot of great perks. The Fidelity Rewards Visa Signature Card gives you 2% cash back on all purchases.  In additional, they have a promotional offer where if you spend $500 in eligible net purchases within 90 days of opening the account you’ll earn $100 cash back.  During the first 12 months you’ll receive an introductory APR of 0%.  After the 12 month promotion your rate will increase to 15.49% APR for purchases & balance transfers, while cash advances will be at 25.49%.

Pros & Cons of The Fidelity Credit Card

Benefits:

  • $100 bonus cash for signing up
  • 0% APR for the first 12 months
  • 2% cash back on all qualifying purchase
  • No annual fee
  • You can easily transfer your cash back into a savings account, checking account, and most fidelity manage accounts (Traditional IRA, Roth IRA, Rollover IRA, SEP IRA, and 529 College Savings Plans).

Things To Consider:

  •  25.49% APR on cash advances (introductory rate doesn’t apply)

Final Thoughts on The Fidelity Rewards Visa Signature Card

Fidelity has one of the better rewards programs that’ll you find out there.  For those who have trouble savings, this card makes it super easy to transfer your earned cash back into a savings/investment account.  If you don’t plan to take cash advances out, than I would recommend this card to you.