Common Points & Miles Misconceptions

1. Your credit score will be low if you have a lot of cards

According to FICO, the most used credit scoring company, only 10% of your score is based on new credit. The impact from a “hard inquiry” from a credit card company is therefore usually negligible and temporary.

2. The percentage you get on spending (cents per point) is the most important factor when getting a credit card

The most important factor when deciding on what card to get is the all in benefits in dollars you receive less the all in costs. A large signup bonus of 50,000 points or more is likely to outweigh the benefit of a higher percentage per dollar spent on most people’s use cases. There are exceptions for more advanced “manufactured spending” applications, but the average credit card user is likely to benefit more from focusing on sign up bonuses and any benefits a card provides such as a travel credit that they are likely to use.

3. You shouldn’t pay high annual fees

In many cases such as the Chase Sapphire Reserve ($795) and the American Express Platinum ($895) the annual fee is so eye poppingly high that for most people its not worth it. However if the value of the signup bonus is high enough it can easily make up for the annual fee. For example the Chase Sapphire Reserve has a 125k point and American Express Platinum has between 175k and 200k points sign up bonus at the moment. In each cash the signup bonus is worth way more than the annual fee.

After the first year of having a high fee card if the benefits you receive are significantly higher than the annual fee then it may be worth keeping. For example, the Chase Hyatt has a fee of $95 but comes with a category 1-4 certificate that can be worth upwards of 3x that fee.

4. Paying a fee to use a credit card never makes sense

If you have a large minimum spending requirement that you can’t otherwise meet it may make sense to pay with your credit card even if there is a 2-3% fee. The implied cents per point on signup bonuses is usually 10% or more so you should still come out ahead even after you pay fees.

Here are a few common large expenditures you can pay with a credit card:

• Federal, State, and Property Taxes
  • You can pay federal income taxes with credit cards for a 1.75-1.85% fee. Most local governments/counties accept credit card payments for a fee as do many states.  
• Home and Auto Insurance
  • Almost all major insurers allow you to pay premiums via credit card, usually without a fee
• Car Payments
  • Ford, Hyundai, and Nissan allow credit card payments via third parties for a fee. For many of the large automakers there are work around like using Western Union or Moneygram to issue payment.