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 Rewards Credit Cards
A CFA Special Report
 


The cards listed on this page have won praise at pro-consumer sites such as BankRate.com and SmartMoney.com.  You can earn up to 6% cash back on purchases at supermarkets, gas stations and drug stores, amounting to hundreds of dollars per year.  The Consumer Freedom Alliance conducted an intensive search to find the best rewards cards available:
The Best Rewards Cards We've Seen
(Updated May 29, 2007)

1. Cash back cards. The Citi Driver's Edge Card is the best choice for most people.  For the first year, you'll earn a full 6% rebate on purchases at gas stations, drug stores and grocery stores.  For example, let's say you already spend $5,000 this year at those places:  you'll receive $300 for that.  In later years you'll receive a full 3% rebate at those places (all other purchases earn 1% each year).  So even if you don't often drive it's still an excellent rewards card.

With the Driver's Edge Card, every year you'll also earn $1 for every 100 miles you drive.  For example if you drive 10,000 miles per year, you'll earn $100 per year.  And it's environmentally friendly because the more fuel-efficiently you drive, the more you'll save.  For example if your car gets 30 miles per gallon, you'll save 30 cents for every gallon of gas you buy.  It's the best rewards card we've seen, so consider applying for it or reading the full scoop on this card.  An offer this generous could be taken down at any time, so don't miss out or you'll probably be kicking yourself later.

The Blue Cash® Card from American Express® also pays you cash back on everyday purchases (groceries, drugstores and gasoline) but there's a catch.  Your first $6,500 of purchases gains only a 1% rebate on "everyday purchases" and 0.5% on all other purchases; afterwards you'll receive a 5% rebate on everyday purchases and 1.5% on all other purchases.  So if you charge $13,000 in one year, with half of that amount spent on everyday purchases, your rebate will average out to 3% on everyday purchases and 1% on all other purchases.

Our recommendation for most people is to get the Driver's Edge Card this year and if you charge huge amounts of money yearly, consider getting the Blue Cash Card after the 6% introductory rate on your Driver's Edge Card has expired.
 
2. Gas rewards cards. The Discover Open Road Card (sometimes called the Discover Gas Card) pays you a full 5% cash back on gas purchases and auto repair expenses, and 1% cash back everywhere else.  It pays you only for the first $1,200 of these auto expenses, so you'll save $60 per year at most.

The Shell Card and BP Card are also good choices, paying 5% credit on gas (but only at Shell or BP stations respectively.)  The BP Card doubles it to 10% in the first two billing cycles.
 
3. Travel rewards cards The Travelocity Rewards MasterCard is a good new miles card for people who travel a lot and who like to save money by using Travelocity to compare ticket prices.  You start with 5,000 points and you receive an additional 1 point per dollar you spend using this card.  Each 100 points is worth about one dollar in free travel.  There are no "blackout dates" and no seat restrictions, and there's a 0% intro APR on balance transfers.  The $29 annual fee is waived for the first year.

The Capital One No Hassle Miles card for people with excellent credit is also good, paying 1.25 points per dollar spent on purchases. This card normally doesn't require a membership fee; if you get their $39 annual fee Miles Card you'll receive 2 points per dollar spent instead of 1.25 points.

Surprisingly, the Citi Driver's Edge Card is the most rewarding airline miles card.  In addition to the benefits we've already mentioned, you can redeem your rewards through Citi's ThankYou Network at their generous "fixed flights" rates.  Can you believe a round-trip ticket to anywhere in America (except Hawaii) costs only $250!?  Their terms state "You can count on getting a ticket for the date you want to fly. For example, only 25,000 points are needed for flights anywhere in the continental U.S. and Alaska, any time of year, with no black-out dates; simply book 14 days in advance and plan for a Saturday overnight stay."  All this might sound hard to believe, but the buzz we've seen on the blogs is the purring of happy customers.
 
4. Various store cards. Keep your eyes open for cards that reward your preferred spending patterns, that also reward you with significant credit.  For example:

  • GM Card:  You'll get 5% credit to use on GM car purchases (Buick, Cadillac, Chevy, GMC, Hummer, Pontiac, Saab, Saturn).

  • Target Card:  You receive one point for every two dollars you spend (doubled when you spend money at Target).  Every time you reach 1,000 points, you'll get a 10% discount on everything you buy at Target for one full day.

  • Home Improvement Rewards Card:  Receive three points per dollar you spend on home improvement, at stores like Home Depot, Best Buy, Bed Bath & Beyond, and Circuit City.  That's equivalent to 3% cash back (you'll receive one point per dollar spent for other purchases.)



Two good sites to search for cards are CreditCards.com and ConsumerCardReport.com.  ConsumerCardReport.com specializes in providing insightful guidance to consumers.  CreditCards.com lists the most offers, but none of the extra cards seemed worth recommending.

There are a few fairly simple precautions that consumers should take when using rewards cards:

  1. Pay it off each month.  The interest rate on rewards cards is usually higher than on other credit cards, so make sure you pay the balance in full every month.

  2. Avoid late fees.  These can be as high as $39, so make it a habit to pay the credit card bill soon after receiving it -- don't procrastinate.

  3. Don't overuse it.  Some people are tempted to buy more stuff with their rewards card in order to increase their rebate, which can pile up unnecessary expenses.  If you don't think you can control your spending, don't get the card!  Some rewards cards will pay you a higher percentage as you spend more money, for example a card may pay 0.5% for the first $5,000 you spend and 1.5% afterwards.  This encourages excessive credit card spending, which is why we don't recommend such cards to most people.

  4. Make few applications.  If you apply for one credit card your credit score will be fine, but as you apply for more cards lenders become more concerned that you may be having money problems.  So the more cards you have applied for in the previous six months, the more your credit score will be decreased.  After six months, your credit score returns to normal.  Our recommendation for most consumers is to make no more than two card applications; but if you plan to get a mortgage or major loan in the next six months, make only one application.

    Be aware that the number of credit cards you actually possess won't harm your credit score.  More cards may even improve your credit score by increasing your credit-to-debt ratio.  In particular, it's wise to maintain your card balances at less than half of your spending limits for those cards.

  5. Check the terms.  The most reliable description of a card's terms are listed alongside the card application.  Although terms can sometimes change, major changes are usually rare.
While the best ways to save money will always involve old fashioned cost-cutting, obtaining a rewards credit card is still a good way to give yourself a virtual raise.
Next Page:  Driver's Edge -- The Full Scoop
 
   
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