How to Use No-Fee Credit Cards to Build Credit and Save Big
If your credit rating is half way decent, chances are you’ve received at least a couple of offers for credit cards with attractive sign-up bonuses. However, before you fall to the temptation of free cash, airline tickets, and member perks, it’s important to look closely at the bottom line.
While there are exceptions to the rule, many credit cards that offer hefty sign up bonuses and tantalizing rewards programs also charge annual fees of $100 or more. That means that you have to spend a serious amount of dough before the rewards you earn break even with the fees you paid up front to get the card. For example, for a card earning 2% on every purchase and an annual fee of $95 a year, you would have to spend $4,750 before you would pocket any returns. While that might be okay for big spenders looking for specific perks, there are lots of credit cards with no annual fees that offer significant rewards without any up-front costs.
In fact, when you pay your no-fee credit card in full every month and receive cash back on all of your regular spending, it’s almost like the credit card companies are paying you!
The Benefits of Credit Cards with No Annual Fees
There’s no question that shopping with a credit card is convenient. With credit cards you can shop online, pay quickly in stores, and keep track of your spending with itemized monthly statements. You can check your balance any time by calling the issuer or logging into an online account. You can also set up your bank account to automatically pay the balance on your credit card on a specific day each month, so you never miss a payment.
This is particularly helpful for consumers looking to build credit, because each monthly payment raises your credit score, which in turn can help you secure lower rates on your mortgage, car loans, and more.
Many no-fee credit cards offer additional benefits like cash-back, discounts at specific retailers, rental car and trip insurance, purchase protection and more. When you opt for a no-fee card and pay your balance in full each month, you effectively get all of these benefits for free!
What to Look for When Comparing No-Fee Credit Cards
When comparing no-fee credit cards, the first thing to consider is whether you will be tempted to run up a balance. If a credit card is your only option for short-term funds, then look for a card with a 0% introductory APR. A 0% APR means that you won’t be charged any interest fees for a set amount of time after opening your card (typically twelve months), as long as you pay your minimum balance each month. If you plan on carrying a balance longer than the introductory period, you’ll want to find one with the lowest regular purchase APR.
If you pay your card in full each month, then you’ll want to look at the card benefits. Many no-fee credit cards offer rewards programs that return 1-5% of your spending in the form of cash back, gift cards, airline miles, or hotel points. To maximize your rewards, think carefully about where you do most of your spending. For example, if the bulk of your spending each month is on gas and groceries, then you’ll want to find a card that pays a higher reward for those types of spending. Similarly, if travel is a big part of your life, then check out cards that reward you for staying at your favorite hotel or flying on your favorite airline.
Finally, consider the unique benefits that are included for free with some no-fee cards, such as purchase protection, travel insurance, credit monitoring, shopping discounts, preferred airline status, and even cash back for students with good grades!
The next time you’re in the market for a credit card, think twice about signing up for one with annual fees. Chances are, there’s another card out there with all of the benefits and no up-front costs.