The question I’ve been asked most since starting this website is, “Which credit card should I start with?”
And, it made me realize understanding beginner credit card strategy is something we need to write about in more detail.
We covered a lot about earning points and miles to redeem towards travel in our beginner’s guide. We’ve also written about the best starter credit cards and cards that are good for those who still need to build their credit. But, we’ve failed to write about a cohesive strategy.
For this article, I’m assuming that the cardholder will be approved for a credit card that requires a 680 credit score, wants to earn points and miles instead of cashback, and, finally, is not just churning credit cards for sign-up bonuses (i.e., opening and closing them quickly for the sole purposes of earning the sign-up bonus points).
Factors in beginner credit card strategy
As a beginner, there are a few factors to consider when determining your credit card strategy. Everything from which bank you do business with to the long-term outlook of the strategy is important.
There might be other considerations based on your specific situation, but the following are factors that should apply for most people.
Types of cards
There are four types of cards: transferrable-point cards, airline credit cards, hotel credit cards, and cashback cards.
Transferrable-point cards: These types of cards earn points that can be transferred to many different airlines or hotels. Chase cards that earn Ultimate Rewards (Chase Sapphire Reserve, Chase Freedom Unlimited, etc.) and American Express cards that earn Membership Rewards (Amex Gold Card, Amex Everyday Card, etc.) are the most popular type of transferrable-point cards. Citi credit cards that earn Citi ThankYou points and Capital One Venture cards that earn miles are other options.[table id=4 /]
Airline credit cards: These cards are co-branded cards from airlines. These cards typically earn bonus miles when making purchases at airlines, but also carry benefits such as free checked bags or companion passes. Examples of this type of card are the American Express Delta Gold Card or the United Explorer Card.
Hotel credit cards: These cards are co-branded cards from hotels. They typically earn bonus miles when making purchases at the specific hotel brands. However, some cards also will reward bonus points for purchases at restaurants or grocery stores. Typically, other perks will include low-level elite status or even a free annual night in the hotel. Examples of hotel credit cards are the World of Hyatt Credit Card and the American Express Hilton Surpass Card.
Cashback cards: These cards earn cashback, not points or miles toward free travel. In some cases, cashback cards can be transferred into travel points. Cards like the Chase Freedom, Chase Freedom Unlimited and the Citi DoubleCash card can be transferred into transferrable points, if the cardholder also has another transferrable-point earning card.
Family of cards
It’s definitely important to diversify the types of points and miles that you have due to horrible devaluations by airlines and hotels. However, when starting out with earning points and miles, it’s important to pick one type of transferrable point to earn.
Why? Unless you’re spending a ton of money, splitting up the point you earn between points currencies would make it tough to earn a substantial number of points quickly for a redemption.
Having just one type of point to track will also make your life easier in terms of tracking purchases and points. Because we recommend starting with a transferrable-point earning card, the four currencies you’re going to want to focus on are American Express Membership Rewards, Capital One Miles, Chase Ultimate Rewards and Citi ThankYou Points.
Eventually, you will get to the point where you have enough to diversify, but when starting, pick one and go for it.
Sign-up bonuses are the quickest way to earn lots of points fast, but I don’t think it should be the most important thing when determining a beginner credit card strategy.
There’s no doubt about it: earning sign-up bonuses is the quickest way to earn a lot of points. But, the long term viability of cards and how it fits into your strategy is most important. It is okay to not get the highest-ever sign-up bonus as long as you still get a high one.
The most important factor when getting a credit card is the bonus points you will be able to earn on everyday spending. The ability to earn more than one point or mile per purchase should be the goal. Being able to earn 3x, 4x, or even 5x the points or miles on every purchase is even better.
When figuring out what cards match your strategy, dive into your expenses and see what you spend most of your money on. For most people, credit card spending will take place in the following categories:
Find a card that rewards you for where you spend most of your money.
There are many other expenses that might not fall under a certain bonus category. Because the other category is so large, it’s important to consider also having a credit card that earns more than 1x bonus on non-bonus category spend (i.e., Chase Freedom Unlimited, which awards 1.5% on all purchases).
Long-term viability & annual fees
The long-term viability is important to beginner credit card strategy because of annual fees. The “better” cards have higher annual fees, so it’s not realistic to load up on these cards. Your strategy should involve a combination of cards with annual fees that carry perks and good bonus spending categories and no annual fee cards that have different bonus categories.
Keeping credit cards open for longer periods of time will help your credit score, so you don’t want to just open and close cards constantly.
Every day not using a credit card to earn points and miles is a day missing out. But, a beginner also isn’t going to go from one credit card to multiple credit cards overnight.
Banks have numerous rules and restrictions on applying for too many credit cards in a short period of time. In short, don’t apply for multiple credit cards in a month, and you will be fine. The most important takeaway is that you should apply for Chase credit cards first because Chase has a very strict 5/24 rule. Applicants are denied any card if they have been approved for five new lines of credit in the previous 24 months.
To help develop your beginner credit card strategy, we’ve developed a sample model wallet. Below are the three cards that you will eventually get, using this strategy.
- $0 Annual Fee – Chase Freedom Unlimited
- $450 Annual Fee – Chase Sapphire Reserve (or Chase Sapphire Preferred – $95 Annual Fee)
- $0 Annual Fee – Chase Freedom
Chase Ultimate Rewards are arguably the most valuable point currency that exists due to the number of ways they can be used. I swear by Ultimate Rewards and have redeemed hundreds of thousands of them in the last few years. It’s very easy to earn through your everyday spend due to the number of bonus categories. This wallet is the Chase Trifecta, which we’ve written about before.
The first card you should get is the Chase Freedom Unlimited. While this is a cash-back card, once you open up the Chase Sapphire Reserve or Preferred, the cashback can be turned into Ultimate Rewards.
The Chase Freedom Unlimited is the easiest card to have in your wallet. No matter what, you’re going to get 1.5% back (or eventually 1.5x Ultimate Rewards points) on every purchase.
Once you add more cards, the Chase Freedom Unlimited will be the card you use for everything except for bonus spend. You can find a more detailed explanation of the card here.
The Chase Sapphire Reserve should be your second card. Not ready for a premium travel card with a high annual fee? You can get the Sapphire Preferred card and product change to the Reserve at a later time.
It will now be your go-to card on dining and travel, as it will earn 3x on those two categories.
With the high annual fee, the Sapphire Reserve card brings a ton of benefits outside of bonus categories. It has an annual $300 travel credit, rental car insurance, trip cancellation insurance, and other travel perks such as Priority Pass lounge access and TSA PreCheck statement credit.
The final card in your wallet will be the Chase Freedom card. This is a no annual fee card, that can be the most rewarding thing in your wallet. For more details, click here.
The Freedom will reward you 5% cashback (or 5x Ultimate Rewards if you also have a Sapphire product) in certain categories each quarter. These include things like gas, restaurants, department stores, etc.[table id=13 /]
Once you’ve set yourself up with those three cards, you can get more creative. Maybe you want to explore the world of hotel credit cards that give you a free annual night or even airline credit cards that come along with an annual companion pass.
The biggest barrier to entry is not feeling like you will ever have enough points or miles to take a free flight or use at a hotel. That feeling is very real, and in a way, it’s actually true. It isn’t easy to rack up a ton of points FAST.
Earning points and miles through credit card spending all comes down to how much you spend. If you’re like me, and don’t like to spend money, being strategic and intentional about every purchase is very important. And, remembering to use shopping portals.
Start small and just focus on earning points. Don’t focus on how you will redeem them (even though that’s the fun part!). If you don’t pay attention to your small points balance, you’ll end up racking up a ton of points without the stress of “never having enough”. And you’ll be on your way to a fun and rewarding (and hopefully cheaper!) vacation in to time.