You Ask, We Answer: Credit Cards

Thanks to inflation, the typical American household spent $700 more on goods and services in July than they spent on the same purchases just two years ago1. Have you stopped to think about whether you are getting rewarded for spending this extra money?

As wealth managers we talk most often about saving money, but there are smart ways to use credit cards to build your financial credit history and get rewarded for your spending habits. Below we answer the questions our clients ask most often about credit card strategies.

My credit card company asks me to confirm my income and net worth annually, do I have to?

While it’s fine to update your income and/or net worth if a bank asks and you want to, you are not required to report changes for a credit card that you already have.

I’m retired, what should I put for annual income on credit applications?

If you believe your income, which includes interest and dividends, will be on par with the previous year you can use the adjusted gross income from the previous year’s tax return. If you expect your income to be much lower or higher than the previous year, use a best estimate and be conservative. There could be unintended consequences if you list a much higher income than you actually have.

How do I increase the credit limit on my credit card?

In order to receive an increase in credit limit you can either request one online, over the phone, or accept a lender invitation. The credit card company will need to confirm your current income and, potentially, your savings/net worth.

Will asking for an increase in credit limit hurt my credit score?

Before requesting an increase ask the company if a hard pull on your credit is required. Some lenders will grant an increase without performing an inquiry that shows up on your credit score, while others will require one. Hard pulls could temporarily hurt your credit score, but the additional credit will improve your credit utilization and provide more purchasing power.

I plan to travel internationally but American Express credit cards aren’t readily accepted overseas. What are some options?

While AMEX cards are being accepted by more merchants globally, they still lag behind Visa and Mastercard. Many travel cards now offer substantial sign-up bonuses, additional points on purchases in certain categories, and travel protections. Pay attention to the annual fee each card charges and be mindful of whether you will get enough value from the card’s benefits to offset those fees. Lastly, when deciding on which card to bring with you overseas, make sure that the card does not charge foreign transaction fees. These fees can add up quickly and you don’t want to be penalized for using your card abroad.

I am married and all our credit cards are in my name with my spouse as an authorized user, should I open a card in my spouse’s name?

Since you already have credit cards in your name, it’s fine to have your spouse open a new credit card in their name if they are willing. While many cards have a $0 fee for authorized users, some cards do charge a hefty fee to add an authorized user. Additionally, authorized card holders are not allowed to use their cards after the primary card holder passes away. Therefore it is best that your spouse have at least one credit card in their own name.

Which reward cards are the most valuable – Travel points or cash back?

Everyone has their own personal preferences when it comes to rewards. The two main types of rewards are travel points and cash back.

Travel Points:
Travel points allow you to book travel like flights, hotels, and car rentals for free. Individual companies have their own points and there are also six flexible point programs (AMEX, Bilt, Capital One, Chase, Citi, and Marriott) which allow you to transfer your points to many different travel partners. Each program has its own transfer partners and some overlap with each other, so it’s important to compare cards and their details before signing up.

Cash Back:
Get paid for spending money on normal expenses. Some cards offer a specific percent back (i.e., 2%) on all of your purchases. While other cards offer a variable percentage based on the category of your purchase (i.e., restaurants or gas). If you are able to pay off your credit card each month, you can earn money on recurring expenses like utilities, cell phones, and other services able to be paid with a credit card. Just keep an eye on the fees that these providers charge to make sure you aren’t paying more to use the card than what you are earning.

Before applying for a credit card it’s important to compare program features and costs so you can choose the card that best suits your needs, spending, and lifestyle. Here are some resources that can help:

And as stewards of good financial health, we can’t be remiss in reminding you to do your best to pay off your credit card balance each month to avoid paying interest!


Related content:

Using Debt to Build Wealth

Given today’s higher interest rates, how should you think about paying off debt?

Are You Getting Paid for the Money You Spend?

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