Millennial Money: Credit card loyalty is no virtue
Loyalty is often a good thing, but not in a relationship with your credit card. It’s often better to be like the “distracted boyfriend” from the internet meme and use your wandering eye to see if you can do better.
The credit card market is bubbling with useful and rewarding offers for many kinds of consumers and lifestyles. Yet, many Americans have the wrong card, and their loyalty is hurting them financially.
At least 1 in 5 credit card customers are carrying the wrong card, usually because fees or rewards are misaligned with their purchasing habits, J.D. Power has said in its annual U.S. Credit Card Satisfaction Study.
They’re in a dysfunctional relationship with their credit card, and it’s potentially costing them hundreds of dollars.
Reasons to dump it
Changing circumstances can sour a love affair, even with a credit card.
Sometimes the card changes for the worse, with a higher annual fee or slashed benefits, for example. Sometimes the market changes, and the old standby doesn’t cut it anymore – 1% cash back is so 2013. And sometimes “it’s not you, it’s me.” The card is the same, but your needs and spending habits have evolved since you first hooked up. You’ve simply grown apart.
So, embrace credit card infidelity if you can score a better deal that either saves money – with a lower interest rate or long 0% period – or makes money with better rewards, whether that’s cash back, points or airline miles.
For example, if you charge $1,500 a month on your card, you’ll earn $540 more from a 2% cash back card than a 1% card over just three years.
Granted, some people shouldn’t have a credit card at all because it encourages them to get into debt – they just aren’t built for that type of commitment. But if you use cards properly, you’ll be able to find a match that will complete you financially.
If you want out of a toxic relationship, canceling your card usually isn’t the best way to do it. It’s better to ghost it.
With a credit card, that means cutting everyday ties with the card, maybe sticking it in a sock drawer and using it a few times a year. Why? The card account is part of your long credit history, which can help your credit rating. And keeping a lot of credit open, while using little of it, helps your credit utilization ratio, another key factor in your credit scores. Using the card a few times a year means the issuer is less likely to cancel the account for inactivity.
Granted, tenure with your issuer might mean you have leverage to talk things out, especially if you want a lower interest rate or a higher credit limit. Those are relationship issues you can overcome. You might even be able to swap partners, with an upgrade to a more lucrative card within that issuer’s card family or a downgrade to a card with no annual fee.
But if you can’t downgrade to avoid an annual fee, sometimes that financial baggage just isn’t worth it anymore. Consider closing the account and making a clean break, even if it will ding your credit.
The relationship you deserve
Before swiping right on a new credit card, think about what you really want out of a new relationship. You don’t want to fall for a rebound card that flatters you with blingy names — gold, platinum, diamond — until you’re certain it has the long-term qualities you need.
Be wooed by things that matter. If you’ll transfer debt, you want a lengthy 0% period. If you’ll travel the world, you want to be rewarded for travel spending and not be charged a fee for foreign transactions.
Besides paying attention to advertising from card issuers, you can also read credit card reviews and use interactive online tools that help you find your newest wallet partner.
And you might try a love triangle of sorts: using two cards in tandem to find chemistry. A flashier one for outsize rewards on some spending – like 5% back on gas or groceries – and a reliable one for all other spending, preferably at least 1.5% back.
There are plenty of fish in the sea and credit cards on the market. By breaking fidelity with your credit card, you might ultimately be more loyal to yourself.
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