How to gracefully transition to the best credit cards...

How to gracefully transition to the best credit cards...
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#1

Hello (awesome) Nerd Wallet gurus!

I’m doing some (much needed) wallet spring-cleaning and am hoping to ditch several second-rate cards in order build my way toward the best cards on the market.

First a bit of history: Five years ago I had no US credit history (I’m a Canadian) and accepted 4 of the best cards I could find at the time. Now however my FICO 8 credit score has reached 767 and I’m hoping to put in some research the cards I should invest in for many years given I currently have a nice high-paying San Francisco job!

About my usage. I buy everything through my best cash-back credit card and I order a lot online (e.g. Amazon). I rarely dine out, travel or rent hotels. While I always pay my balance in full each month, I do appreciate however cards that have low APR in case I have an unexpected financial downturn or something.

Currently my best credit card is the Wells Fargo Cash Wise. I like it a lot as it offers 1.5% cash back on everything. As my other cards are kind of crummy I haven’t used them in months and am considering cancelling them all!

My objective it to have within 6 months the best four credit cards that complement each other (e.g. use one for cash-back, one for travel, one for lowest-possible APR, etc) I intend to do this ‘clean up’ process over time in order to obtain the best APR and credit line possible.

From reading many articles on your (truly impressive) website, I see that the Citi Double Cash card offers 2% with no gimmicks. This seems right up my alley so I’ll probably ditch my existing Citi card and apply for that one!

In addition, the Apple Card is coming out this summer and although I’m an Android user and I would not see its awesome 2% cash back if I use the physical card, I really dig what this card is trying to do and will probably apply…

I’m wondering how to best approach banks like Citi for this process however given a surprising development trying to ‘upgrade’ another card I have issued by Capital One. What happened there is that yes they can upgrade me to one of their better cards but my APR stays at the really crummy 28% of my older card! (So what’s the good of ‘upgrading’??)

My questions to you are:

  • Should I close my second-rate cards before applying for the good ones?
  • Should I tried the bank’s ‘upgrade’ process or just close the older account to get the best APR on the new one?
  • Which selection of 3-4 cards to you think is best suited for my credit card usage?

Thanks for the tips! :slight_smile:

Jean-Pierre


#2

hi, @jeanpierrepoulin!

First of all, it’s a smart move to periodically look at the cards in your wallet and evaluate whether they’re working for you. A lot of people just keep using the same cards, getting low (or no) rewards or paying extra-high interest, because it’s too much of a hassle to switch. To your questions:

  • Unless you are paying an annual fee, I would recommend that you keep your old cards open. Closing them would (a) reduce the average age of your open accounts and (b) reduce your overall available credit, which will increase your credit utilization. Both of these could hurt your credit score. In general, there’s no such thing as “too much available credit,” especially if you have a good-paying job and a good credit history. So you don’t have to “make room” to get approved for a new card.

  • That said, if you are carrying a lousy card from one issuer and want a better card from that same issuer, ask for a product change to the better card. This allows you to keep the account open and keep the credit line. For example, if you had a Capital One Platinum (no rewards) and wanted to upgrade it to the Capital One Quicksilver (1.5% cash back) or Venture (2 miles per dollar), you could call the number on the back of the card and ask for a product change. NOTE: Asking for a product change might trigger a “hard” credit check that could knock a few points off your score, but that would happen if you applied for a new card anyway.

  • Without knowing you beyond what you’ve written, it wouldn’t be right to suggest specific cards for you to apply for. But let’s unpack what you’ve written:

“I rarely dine out, travel or rent hotels.” If that’s the case, then I wouldn’t recommend a travel card. The best travel cards carry annual fees, and their rewards are difficult to redeem for anything but travel, so you have to travel a lot in order to make them worth your while. Sounds like cash back is the best bet for you.

Now the question becomes how much effort do you want to put in to managing your credit cards? I carry six different cash back cards, and I spread my spending among them depending on which card pays the highest rate at any particular merchant. But then again, understanding credit cards is literally my job, so I’m an extreme case. For most people who are interesting in putting in a little bit of effort, I recommend carrying two cards:

  1. A flat-rate cash back card that pays the same rate on everything. You mentioned Citi Double Cash – that’s one of the best flat-rate cards around. Wells Fargo Cash Wise is decent too. Scads of cards pay 1.5% cash back on everything.
  2. A cash-back card that pays extra rewards in certain categories. This could be a card with bonus categories that change from time to time (such as Discover or Chase Freedom), one that has unchanging bonus categories (like the Amex Blue Cash cards) or one where you can choose which categories gets the highest rewards (like Bank of America Cash Rewards or US Bank Cash+).

You then use the bonus-category card for purchases that earn extra rewards, and the flat-rate card for everything else. Our roundup of the best cash-back cards has multiple options that might appeal to you.

Meanwhile, if you want a card with a very low ongoing APR for the times when you occasionally have to carry debt, your best bet might actually be a local bank or credit union. The big national issuers tend to compete on rewards and perks rather than APR. Another option is when you have a big purchase coming up, apply for a card with a long 0% introductory APR period.

I hope this helps you put together a wallet that’s more rewarding!


#3

Hi Paul, thanks for the super-useful response! You guys are the best!

This really clears up a lot for me:

  • Given that you’re a pro and you go through the trouble of maintaining 6 cards lets me know I don’t need to ‘make room’
  • I’ll also stay away from the Travel cards… Air Miles have such a bad rep anyways when you try to use them!
  • I will no longer look for a low-APR card and focus my effort with my bank / credit union instead.
  • The cards with ‘selectable bonus’ are of interest. I’ll be looking up your selection

Given what you’ve mentioned here’s what I’m going to do:

  • I’m going to request a ‘product change’ from both Citi and Capital One. (Could be tricky for Citi given its attached to the Costco membership)
  • I’ll apply for the Apple card when it comes this summer.
  • I’ll probably apply for the Amazon (where I buy most of my stuff)
  • I’m going to apply for a line of credit at my bank (Wells Fargo)

Some remaining questions however:

  • If I don’t close crummy old cards I no longer intend to use, does it not reduce the line of credit that the new (good) cards will offer me? (My aim was for each card to have a $10K+ credit limit on 3-4 top cards but if I have 6 maybe some new cards will only offer $2K?) .
  • The above influences my application to a good line of credit at Wells Fargo… As this line of credit is more important than having more than one top cash-back card maybe this application would yield a lower line of credit (and higher interest) if I have 6 open credit cards? (I’m ok with a ‘ding’ of a few months on my credit closing useless cards… I’m focused mostly on the long run and a top credit line is the highest priority so maybe closing all my crummy cards now and applying in a couple of months for the best credit line is best?)
  • What strategy did you end up with to pay for gas at the pump? Is there a particular gas retailer that has a particularly sweet deal at the pump? (Credit card or not)

Thanks for the awesomeness!

Jean-Pierre


#4

@paul may be able to weigh in again, but it hasn’t been my experience that existing credit limits hurt your ability to get good limits on new cards. Recently one issuer lowered a limit on an old, rarely used card when I applied for another one (from the same issuer), but that’s the only time that’s happened and I currently have 12+ cards, most of them with substantial credit limits.

That said, if you’re after a line of credit from Wells Fargo, you may want to hold off on other applications just so they don’t ding your scores. I don’t know what type of LOC you want (business? home equity? personal?), but I’d wait until you get it before applying for anything else.

And seconding what @paul wrote about closing accounts–it doesn’t help and may hurt. The biggest issue is the reduction in credit utilization, which happens as soon as you close it. The closed card typically will remain on your credit report for several years, so your history with it doesn’t disappear right away, but eventually it’ll fall off. I do close accounts, but I avoid doing so if I’m going to be in the market for a major loan or even another credit card. Best to wait until you’re approved.

Hope that helps…please let us know if you have any more questions! We love talking about this stuff.


#5

Hey @jeanpierrepoulin,

Building on what @lweston said … individual issuers and lenders will often want to limit their exposure to a single borrower, so if you have, say, one Chase card and you apply for another, they could still approve you, but the credit line might be smaller because they are looking at the combined credit line across both accounts.

To your last questions:

  • I can’t speak for any issuers, but my personal experience has been that issuers are less concerned about your available credit on other cards than about your outstanding balances on those cards. So if you (1) usually keep your balances low and pay them off every month, (2) have good credit and (3) make a decent income, then a new card will probably not concern itself much with your credit limits on other cards. The key here is that if you have good credit, then card issuers want you to use their products. The more you use them, the more money they make, so they want to give you a decent credit line. Conversely, if you have high balances on all your other cards, then they might give you a smaller credit line or reject you outright. Because someone who’s already carrying a lot of unsecured revolving debt and is applying for more is probably in a financial pinch.
  • What I said in the last answer still stands: People who have good credit tend to have access to all kinds of credit that they don’t use. It’s not a bad thing to have unused credit; it’s a bad thing to use all the credit you have. I’ve never heard of a lender saying “well, why don’t you use all those credit cards rather than borrow money from us?” That said, if these old cards are literally causing you stress, go ahead and close them, but don’t do it with the expectation that having less available (unused) credit will make you more attractive to lenders, because that’s not how it works.
  • I pay for gas with a cash-back card that gives me 3% back at the pump. I also have two cards that pay 5% on gas for three months out of the year, so that over the course of the year, I get an average of 4% back. I don’t use gas-station-branded cards. Those cards generally stink because they give you a discount expressed in cents per gallon (5 cents a gallon is common). That means the discount is worth less and less as the price of gas goes up. (5 cents is a 2.5% discount when gas is $2 a gallon and 1.67% when gas is $3). But if you get, say, 3% cash back, then you get back 6 cents a gallon when gas is $2 and 9 cents a gallon at $3. Most people don’t juggle cards the way I do, so consider picking one that has a good rate and just use it every time. See our roundup of the best cards for gas for some options.

#6

Hi @paul and @lweston

Thanks for taking the time!

@paul did you know the Citi Costco Visa offers 4% at most gas retailers? (I think it requires Costco membership however)

I’m very surprised that a given credit card issuer would not take into heavy account the ‘total amount of credit’ already issued to an applicant! This sets them up for huge risks as it does nothing to prevent someone with good credit from applying for a dozen cards, maxing them out to buy a Ferrari and then declare bankruptcy driving a hundred fifty miles an hour!

This situation forms the complete opposite of what people would expect and is useful to know as one applies for credit (responsibly).

Good news! I was just approved on a $15K Wells Fargo personal credit line with about 12% APR. This has been a top objective and now I have a nice cushion to fall back on if something bad happens without resorting to 28% APR cash advance on credit cards!

Now that I have that under my belt I’m continuing for the next 6 months to apply for the best cards:

  • I just applied on the Citi Double Cash and expect it to go through. It will become my go-to card for most purchases over my previous go-to Wells Fargo Cash Wise card.
  • I’ll be applying to the Amazon card as I buy most everything thought them anyways.
  • Then there is the Apple Card this summer… after that I’m done with 5 great credit cards and a great line of credit!

Choosing which one to use for what purchase is turning out to be quite a complex challenge! It’s not just about the % of cash back. For example going through the details of each card I remembered the my Wells Fargo Cash Wise card offers $800 of protection on my smartphone if I pay my cell bills with that… Totally worth doing!

When I’m done I’ll have 5 great cards. However all of them are Visas or Mastercards… I haven’t developed a strategy about American Express and Discover yet… what is your take on those? (My end game at this point is to have the best possible starting point to apply for a mortgage within a year)

Final question: what card do you use when you want the best protection when renting a car?

Thanks!

Jean-Pierre

P.S. Credit card spring cleaning is totally worth doing and kind of fun! Encourage your readers to do some ‘credit card spring cleaning’ too! :slight_smile:


#7

I think back in the day lenders were worried that people with lots of available credit would suddenly max it out and default. Data analysts for FICO discovered that wasn’t actually likely–that people who used credit responsibly in the past tended to continue doing so. Which is why there’s no FICO reason code that says someone has “too much” available credit.

Congrats on the approval! It’s good to have access to cheap credit as a backup, but we also encourage people to set up an emergency fund and over time to build up three months’ worth of expenses. The cheapest credit is usually “borrowing” from yourself.


#8

Costco and gas: The Costco card offers 4% back on gas, but you need a Costco membership ($60 annually) and your rewards are redeemable only once a year, in person, at Costco. If you’re a regular Costco shopper already, it’s a great card, but if you’re just looking for a good gas card, there are better options.

"Too much credit": I think @lweston pretty much covered this. If someone has, say, $50,000 in available credit that they’re already not using, issuers know that it’s extremely unlikely that an additional $10,000 would suddenly spur them to run out and spend $60,000. Irresponsible credit behavior doesn’t typically wait to reveal itself.

Discover and Amex: Both have great products (I carry one of each), but as far as credit scoring goes, a credit card is a credit card is a credit card. Having 4 Visa cards is no different from having 1 each of Visa, MC, Discover and Amex. They’re all just listed as revolving accounts on your credit report, and your “credit mix” looks the same.

Rental car coverage: When renting a car, I use a credit card that provides primary rental coverage. This means (basically) that if you have an accident with the rental, you call the card issuer, and they take care of it. Most credit cards offer what’s called secondary coverage. With those cards, if you have an accident, you first call your own auto insurance company — the one you insure your personal cars with. The credit card’s coverage kicks in after your own insurer’s. So it can pay your deductible, for example. See our primer on credit card rental coverage for more.


#9

Hi paul and lweston,

Thanks so much for spending all this time with these great tips!

I think I’m good to go now and my wallet is much happier :slight_smile:

I’ll definitively read up about cards that offer ‘primary rental coverage’ now as hopefully these would prevent my car insurance from going up in the unlikely event something happens with a rental.

Happy wallet nerding! :slight_smile:

JP