Editorial Policy

Creating the Ideal Credit Card Portfolio

Eva Norlyk Smith Ph.D.

March 4, 2013

QHi Eva,

I currently have no credit cards or debt. The only debt I had was my student loans ($15,000) and a car loan ($10,000), and I paid those both off more than three years ago. I'd like to get some credit cards, and I'd like to have more than one to take advantage of multiple rewards and have a bigger overall credit limit. I travel a ton for work, so a travel card probably makes sense, but beyond that I don't know. How many cards do you think I should get and what kinds? And is there any special timing I need to be aware of as far as applying for too many cards at the same time goes? — Patrick

ADear Patrick,

Well, you're in a great position to build a portfolio of credit cards. With the excellent payment record on your student loan and car loans, you are likely to have a great credit score. And yes, it's a good idea to have at least two or three credit cards to use for different purposes.Ask Eva

Which credit cards to get will depend on your specific situation and preferences. For most people, it makes sense to have one or two rewards credit cards, both to amass points and to get some perks. In addition, if you don't have a large emergency savings account, it's always good to have a no-frills low-interest credit card to fall back on should unexpected expenses arise.

Within these categories, however, there are still lots of choices, so let's take a look at them.

Choosing the best travel rewards credit card
As you mention, because you travel a lot, a travel rewards card is an obvious first choice. Travel rewards cards fall into two categories — generic travel rewards cards and airline or hotel rewards cards. As the name implies, the latter are co-branded with an airline or hotel, and most major hotel chains and airlines offer one. Here are the pros and cons of each:

Generic travel rewards cards: Generic travel rewards cards offer the greatest flexibility when it comes to redeeming earnings. You can use points to pay for a ticket on any airline of your choice, and in many cases, rewards points can also be used toward a free hotel stay or other travel-related expenses.

Earnings on generic travel rewards cards can be quite competitive — for example, the Capital One Venture Rewards card gives a flat 2 rewards points per dollar spent. That is the equivalent of 2 percent cash back on your expenses, if you redeem points for travel expenses (if you redeem for cash back, the value of the points drops to 1 percent).

The card comes with a 10,000-mile bonus when you spend $1,000 within the first three months. There is a $59 annual fee, but it's waived the first year. Alternatively, you can opt for the no-fee Capital One VentureOne Card, which offers a lower rewards earnings at 1.25 points per dollar spent.

Airline and hotel rewards cards: If you're a frequent traveler, co-branded airline and hotel cards can accelerate your earnings. With generic cards, you earn points only on your purchases. With co-branded cards, however, you also earn points for the miles you've flown and the number of nights you stay at a hotel.

This category of cards also offers numerous travel-related perks. Most airline rewards cards, for example, qualify you for priority boarding and waived baggage check fees (for the first bag). These cards also help you earn elite status with the airline or hotel faster, potentially giving you access to additional perks, such as complimentary upgrades to first class on flights (when space is available), as well as complimentary room upgrades in hotels. For frequent travelers like you, those perks can be worth a lot more than the cash value of rewards earnings.

However, airline rewards cards generally have higher annual fees, starting at $95 and going as high as $450. Also, to earn the best rewards, you have to fly mainly with the affiliated airline (or stay at a particular chain of hotels), and that may not be practical.

Deciding on a low-interest credit card
It's a good rule of thumb to never carry a balance on a rewards credit card. Interest rates are typically higher than on other credit cards, and if you carry a balance, interest charges can quickly exceed the value of rewards earnings. So, in addition to applying for a rewards credit card, consider getting a low-interest credit card as well. That gives you something to fall back on in an emergency.

Unfortunately, most low-interest credit cards these days are a misnomer, because the interest rates advertised range from 10.99 percent to 20.99 percent. This means that those without superb credit are likely to end up on the higher end of the interest range spectrum.

The one notable exception are credit cards from Pentagon Federal Credit Union, which feature a permanent 9.99 percent APR, and in some cases even a 7.49 percent intro APR for the first 36 months. You have to be a PenFed member to apply, but it's not difficult to qualify.

Timing your applications
It's fine for you to apply for two or three credit cards at the same time, as long as it's a one-time occurrence and you're not planning to apply for a major loan like a mortgage or car loan in the near future. It may shave a few points off your credit score, but it should recover quickly, as long as you keep up the same great credit management skills you've shown in the past.

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