Episode Transcript
[00:00:00] Speaker A: In this episode, we tell you everything you need to know before you choose your next credit card.
[00:00:04] Speaker B: Let's get started from new money new problems. It's the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles they've never seen.
Negotiating compensation, uh, purchasing your first investment property. Helping your family with money. The highs and lows of entrepreneurship. New money brings new problems that require new solutions. Join us as we work through them together.
I'm Brenton Harrison, and this is the new Money New Problems podcast.
[00:00:43] Speaker A: Hello. My name is Brenton Harrison. I'm new money new problems and your host for the new Money New Problems podcast. Over the last several weeks, we've been doing a series on credit. A couple weeks ago, we did an episode on when you shouldn't use your credit card. Last week, we applied a little balance and told you when you should. In that episode, I shared that credit cards aren't the devil, uh, and that if you're using them appropriately, they can have some real value. So in this episode, we're going to tell you some factors you should consider when choosing your next credit card. As a reminder, this is not something that you should be doing if you're really struggling with credit card debt. We'll put some links in the show notes, some videos we've done in the past for how to get out of credit card debt. But if you're managing it well, here are some factors you should consider that might be of some help. Number one is to sign up for a credit monitoring service, but to also have an understanding of what type of score they're monitoring. If you're looking on screen, you can see that I have accounts with both credit, uh, karma and Experian. But when you look at the bottom and Experian, it says, at the bottom of the score, scores calculated using FICO score eight, whereas under credit karma, the transunion Equifax show scores, but at the bottom, it says, scores calculated using Vantage score 3.0. Many people will say, hey, I checked my score on credit karma, but when I go get it checked at a lender, it shows something different. This has to do with why each credit bureau is going to have a different score regardless. But there's also two different silos of scores. There's vantage score and FICo, and within each silo, there's different versions of each of those scores. So you could even have a situation where there's two different FICO scores based on your credit monitoring service. Using one type of FICO score and your lender using another. Now, if you're wondering the difference between those two silos, I would say in my opinion that a FICO score is easier to manipulate in terms of making it look based on your credit score, like you've managed your credit well within a short period of time. There are some elements of a FICO score that are static, and there are some elements where you do have the ability to make some significant improvements in a 30 day period, whereas a vantage score is more set up to show you the trends of your credit over time. And one of those examples as you see on screen, we'll put this article in the show notes. A FICO score has certain percentages that impact your credit score. Payment history is 35%, credit utilization 30%, and so on and so forth. Whereas a vantage score does not do it based on percentages, they do gradations of importance. So payment history is listed as extremely influential, whereas credit utilization is a level below at highly influential. So if you're monitoring your score for an upcoming purchase, understand the difference between the two as it relates to credit cards. The reason that I like people to sign up for these is as you'll see when we get to their credit card marketplace, instead of you blindly applying for a credit card, these services will take your score and match it up to credit cards for which you have high odds of approval. Number two is to establish the purpose of why you're getting a new card in the first place. And this isn't like some existential conversation about the purpose of credit cards, it's just having an idea of how you're trying to utilize that card best. For example, if you're looking for a card that incentivizes you for everyday purchases, you probably don't want to sign up for a card that incentivizes you specifically for travel. There are two different purposes, and this can even come into play for things like small business credit cards. I shared that in my personal life. I'm more of a fan of cashback credit cards, reasons for which we'll share after the break of this episode. But for my small business credit card, I specifically look for a card that incentivize you through reward points and miles, and it has to do with the knowledge of how the IR's treats purchases with credit cards for business purposes. For example, if I have a purchase for my business, let's say a laptop for $1,000, well, that's a potentially deductible expense. But if I have a small business credit card that's a cashback card, and I have $500 worth of cashback that I use to lower the impact of that purchase. I now can't deduct the full thousand dollars because I used $500 worth of cash to lessen the impact. So I can only deduct the remaining 500. However, if I have a small business credit card and I have dollar 500 worth of, uh, rewards points or miles, I can actually redeem those points in miles, lower the impact of that thousand dollar expense while still claiming the full thousand dollars as a business deduction. That's the difference between blindly choosing a credit card and picking a credit card based on your goal. And after you have that goal, doing your research to find the card that best benefits you. Number three is after you've chosen the purpose of your card, start to compile your top two or three options. Going back to the credit card marketplace, you can see exactly as I said, as you pull up different categories of cards and they have it separated for you, you'll also see your odds of approval based on your score. So, once you go on these sites and you go into that silo for which you're looking, you can start to compare, even though they may have dozens of cards here, the top two or three that you want to look into and compare to each other. And if you have those top two or three, understand that you may not be approved for any of them, but hopefully your odds are pretty high. But once you have your two or three, the next and final step in preparing to apply for that credit card is to batch your applications as needed in as short a window as possible. Now, obviously, if you get approved for the credit card you're looking for on the initial application, you won't have to apply other places. But if you don't get approved, the idea is as soon as you find out that you weren't approved to then apply for the second card in the list as quickly as possible. Because in doing so, you could blunt the impact of having multiple credit inquiries on your credit score. Now, to be clear, in both the vantage score and the FICO score, a new credit inquiry is not that big of a deal. It's 10% with the FICO score, and it's considered not very important on the vantage score. But that doesn't mean that you just have dozens of different credit increase out there for no reason. Obviously that's an exaggeration, but there's an article on screen from myfico.com, which we'll put in the show notes, and I'm reading from this article and it says, and I quote, FICO scores. Look on your credit report for rate shopping inquiries older than 30 days. If your FICO score, find some. Your scores will consider inquiries that fall into a typical shopping period as just one inquiry. What that means is if you have applied for a credit card today, and when pulling your credit score, they see that you also applied seven days ago for a different card. It falls within the recent 30 day window, so they don't even consider it. It's excluded from the calculation. However, if you had one that you applied for 60 days ago, that would not only be included, but if you had two inquiries more than 30 days out that were also spaced pretty far, those would be considered two separate inquiries. Going back to the article, it says, and I quote, for FICO scores calculated from older versions of the formula. This shopping period is any 14 day span. So I mentioned that there's different versions of the FICO score. In older versions, they're saying that they did not exclude the most recent 30 days of credit inquiries. They instead looked at any rolling 14 day period, and as long as the multiple inquiries within the same purpose fell within that 14 day window, they would be considered one inquiry. This is why I use this as the rule of thumb for my clients. For anything from applying for a car loan to a credit card to a home loan. Get your top two or three lenders, and whenever possible, try to get all two or three applications in within the same 14 day period. Because then, regardless of the FICO scoring model that's used, you know that you'll be okay because you batch those applications as best as possible. After the break, we'll actually compare three credit cards that I personally own so you can see the difference in how they could benefit you and how I came to the decision to apply for each one in my personal life.
[00:08:50] Speaker C: This is the new Money New Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and obstacles theyve never seen. Well be right back.
[00:09:08] Speaker B: Are you wondering what new money problems you might be overlooking in your financial life? If so, weve got great news.
Weve crafted the new money new problems gap finder to identify potential weaknesses in your finances in areas ranging from budgeting, investing, insurance, and even the threat your extended family's finances could pose to your household. Please head to newmoneynewproblems.com gapfinder to complete it today. Again, that's new Moneynewproblems.com gapfinder to take the assessment.
[00:09:47] Speaker C: You're listening to the New Money New Problems podcast. Subscribe now at new money newproblems.com. welcome back.
[00:09:58] Speaker A: Before the break, I tease that we're going to go through and evaluate three credit cards that I actually own. So I can show you why even though I have all three, I have essentially stopped using one and how I use the other two on a day to day basis. We're going to start with the Amex Gold card, and the American Express is actually the first credit card that I ever owned. I went all the way through from green to gold to platinum, and as I shared last week, I went back down to gold. Next week I'm going to tell you why and actually give you some ideas for if you're in a similar situation, how to extricate yourself from that situation. But I want you to look at this card, and how I want you to view it is through the prism of whether I'm going to use it for everyday use versus travel. So if you look at this card, the first thing you see is it has a $250 fee. If a point is worth a penny. That lets me know that unless I use these multipliers effectively, I have to spend at least $25,000 a year on this card to break even for having the card, which is a significant amount of money to put on that credit card. So how would I use those multipliers to blunt the impact of that dollar? 250? Well, you can see that you earn four times membership rewards points at restaurants plus takeout and delivery. In the US. That's a pretty cool deal. It essentially means if I spend a dollar on dining and takeout, I get $0.04 back. However, we typically grocery shop more than we eat out. So while it is a cool benefit, I don't know how much I would be using it to benefit from it. You do, however, see that you still get four times membership rewards points on us supermarkets, up to $25,000 per calendar year, after which point it goes back to one point per dollar spent. Now that's something that's valuable to me because again, most of our food purchases are at the grocery store. So right off the bat, I know that for a big consistent purchase we get four times points when we buy our groceries. You can also see that you earn three times membership rewards points on flights booked directly with airlines or on amextravel.com dot. And you get $120 towards Uber each year and $120 in dining credits as long as you use those dining credits at Grubhub the Cheesecake factory, Goldbelly wine.com milk bar and select shake shack locations. Now right off the bat, I don't eat at any of those places so that dining credit is useless to me. The $120 is helpful towards Uber because I do travel a lot for work, but that's something that could be of a benefit. And the three times membership rewards points if I book through Amex travel or directly with the airlines is potentially helpful if I use this card for travel. So I can see a potential window for me using these expenses at the grocery store and booking travel if I'm traveling consistently where I could at least break even with the fee. But it's not a guarantee. And as I look at the benefits of the travel, I have to have an understanding of how I travel. I live in Nashville. Nashville is a southwest hub. 90% of the time I'm going to be traveling through Southwest. And Southwest has its own credit cards. So even though there are some cool benefits for travel to this Amex gold card, I need to compare it to the southwest card. The southwest card also gives me three times points if I book through Southwest.com, they give me an annual bonus of 7500 points for having the card. I get two times points for all of the hotels and rental cars that I booked through their site, two times points on transit, including rideshare like Uber, two times points on Internet, cable, phone services and select streaming. And the fee is $101 less per year than the Amex gold card. So while there may be a random time where I don't fly southwest, it's not going to be a regular occurrence. And if I look at all of the benefits that I get for getting this card, this would likely be the card that I use for travel, more so than the Amex Gold card. And if I'm not using it for travel, I'm really depending on getting four times points on just going to the grocery store to cover a $250 fee, which is hard to do. So if I'm looking at this, I now have determined my travel card. I could use my MX gold card for my everyday expenses unless I find another card that is better suited and rewards me better for those expenses. And when I realized that, I started to look into cashback cards. And you're going to start to see see why I'm more of a fan of cashback cards. And the card that I actually have is a chase freedom unlimited card. This is not a recommendation of any of these cards for you. I'm just walking you through my process of how it helped me with the Chase Freedom unlimited card. You will see, as is the case with most cashback cards, that there is no annual fee. So that's a big reason why I'm a fan as compared to you trying to figure out whether you can cover 600 5251 hundred $50 in fees through your rewards points. With a cashback card, there is typically no annual fee. And in addition to not having an annual fee, they often have multipliers that even exceed what you get from cards that do have an annual fee. As an example, with the Chase Freedom Unlimited card, you get 6.5% cashback for every dollar you spend on travel booked through chase travel. So now I know that while I book most of the time through Southwest, if I on an off purchase decide to book through Chase travel, I get 6.5 cents on the dollar. Through that site, you get 4.5% cashback on drugstore purchases and dining at restaurants, including takeout and eligible delivery. But here's the kicker. You get 3% back on all other purchases, up to $20,000 spent in the first year. So in that first year, no matter where I spend it, I get $0.03 back. And even after I've spent $20,000 in that first year for all other purchases, I get 1.5 cents back. And this is the biggest reason, even above and beyond the fee. I don't want to have to keep a running total of where I'm spending on this card to get its highest and best use. And with a cashback card, it is infinitely more clear to just say if I spend a dollar, I get 1.5 cents back. It's much easier to keep up with in terms of how you generate your rewards points. So when I'm comparing all of these three cards that I actually own, I have identified a travel card, which I will use, which is the southwest card. But I've also identified that even though I have the MX Gold card, the Chase Freedom Unlimited card has no fee and actually rewards me better for the purchases I make on a day to day basis. So I am in a position now where I'm m looking and I'm trying to extricate myself from that Amex Gold card while still keeping my credit history. Because one of the problems with closing a credit card is it lowers the average age of your credit when you lose that credit history, and it subsequently lowers your credit score as well. So next week, I'm going to show you how to get yourself out of those high fees while still keeping the credit history along with other credit card tips and tricks you can use to benefit you financially so that you have them in your back pocket as you choose your next credit card or as you find better ways to use the ones that you already have. See you next week.
[00:17:15] Speaker B: From new money, new problems this was the new money, new Problems podcast, a show for successful professionals searching for the tools they need to navigate financial opportunities and options they've never seen.
