The Internet is often a great source of information. In fact, these days it seems like it's almost the only place to find information. But there's a real economy behind providing and distributing all that information, and consumers would do well to keep that in mind when looking for advice.
Credit cards are a perfect example, because there is big money in convincing you that certain cards are better than others. This means that almost every website that makes credit card recommendations gets paid to regurgitate the marketing of card issuers, and the sites rarely tell you that their "editor's picks" or "best credit card recommendations" are actually sponsored by the card companies. So you have to be on the alert for misinformation.
Now, that doesn't mean that all sponsored credit cards are bad or that all credit card advice is flawed. It's just that there are often better cards out there.
Let's set the record straight on a number of credit cards that too many websites recommend -- and offer alternative recommendations for credit cards that outperform them.
Rewards cards
Avoid: Chase Freedom.Despite the claims of 5% cash-back rewards, you'll be hard-pressed to earn more than 1.5% to 2% rewards with this card. The bonus 5% rewards apply only to quarterly rotating categories, which means you can't earn maximum rewards year-round on everyday purchases such as groceries and gas. The bonuses are also capped, so you can only earn maximum rewards on $1,500 of spending from October through December. You have to sign up online to get these rewards; they're not automatic.
You'd be better served with a card such as the Costco TrueEarnings, whose 3% rewards on gas and restaurants and 2% rewards on travel are valid throughout the year. Rewards are unlimited except for a $3,000 spending cap on gas, and it's the only card that pays bonus rewards on Costco's discount gas.
Avoid: Discover More.
This card suffers from all the same problems as the Chase Freedom, except that it also tends to have lower caps on reward categories, further limiting your bonus rewards.
Check out instead: Discover Escape or Fidelity Visa.
A better option would be the Discover Escape, because it pays 2% cash back on all purchases, which you can redeem for travel purchases. The $60 annual fee is more than made up for by the 25,000 bonus miles (or $250) you earn in 25 months (1,000 miles per month).
If travel rewards aren't your thing, take a look at the Fidelity Rewards American Express, which pays a no-bull 2% cash back on every purchase, deposited directly into your Fidelity brokerage or checking account.
Business cards
Avoid: Ink Bold from Chase.This card does pay a ton of bonus rewards, so you're eligible to earn more than 50,000 points the first year and 47,500 every year thereafter, but you also have to spend a ton of money to get them (more than $100,000 annually to get maximum bonuses). And if you account for the $95 annual fee (the first year is free), your reward rate maxes out around 1.4% and decreases the more you spend.
Check out instead: Ink Cash or Capital One Venture.
Compare this with its cousin card, the Ink Cash, which charges no annual fee, pays 1% on all purchases and pays 3% on bonus categories your business needs, such as fuel, home improvement, dining and office supplies. Another option is the Capital One Venture for Business, which pays 2% rewards in the form of travel credits you can apply against your account statement. Plus the 15,000-mile sign-up bonus makes it well worth the $59 annual fee.
Cards for people with poor credit
Avoid: RushCard Prepaid Debit.The fee structure on this card makes it hard to accept the notion that the card is designed to empower the unbanked. The no-monthly-fee version charges a $19.95 activation fee and $1 for every transaction (up to $10 per month). It also costs 50 cents to check your balance at an ATM and $1.95 if you don't use the card for 90 days. And because it's a debit card, it doesn't do anything to help your credit scores.
Check out instead: Citibank Secured.
Citibank Secured charges a $29 annual fee and no transaction fees, rather than the $120 that RushCard could cost you. Plus your initial secured collateral gets deposited in a certificate of deposit, which earns interest, and you may be eligible for a nonsecured Citi card after 18 months. This helps users build credit and is a feature that the RushCard can't offer.
Published Oct. 13, 2010
