Credit Card Tiers: Navigating the Credit Card Totem Pole

When used strategically and responsibly, all credit cards can benefit your lifestyle and well-being. From strengthening your credit history for a lower mortgage rate to earning miles for that big trip, credit cards can save money in various ways that rack up into hundreds to thousands of dollars. However, not all credit cards are created equal. Secured cards are for credit builders while others may only earn direct cashback. On the other end of the spectrum, there are also exclusive invite-only cards coated in palladium where potential candidates have to meet seven-figure income and spending requirements, but also more practical rewards cards with lucrative benefits and perks that can enhance their owners’ lives.

Choosing the right credit card based on your spending habits and budget can save you a lot of money.

For the purpose of providing the most realistic options in my credit card totem pole, I omitted invite-only luxury cards such as the American Express Centurion Card and J.P. Morgan Reserve Card from the list because the majority of people would not qualify for those cards. Today, I would like to discuss my personal tier system to explain different types of credit cards and to whom they cater.

Tier 1: Secured and Credit Building Cards

Secured credit cards fall into the first slot and serve one primary purpose: Building your credit. I usually do not recommend applying for secured cards for most individuals. However, they can be very helpful for those who are seeking to rebuild their credit scores and cannot be approved for better cards due to negative marks or lack of sufficient credit history. My first card was a PNC Secured Credit Card with a limit of $250, which was also my initial deposit to open the line of credit. It did not earn any points, interest rates were high, and I had to pay a $3 monthly fee to keep it open. The single purpose it served was to build my credit score so that I could move up the ladder and be approved for a better card(s) in the future.

The Capital One Platinum Card’s sole purpose it to build (or rebuild) your credit history. Photo credit: www.capitalone.com

I would also place no annual fee cards that lack points or mile-earning capabilities under Tier 1. The Capital One Platinum Card is a no annual fee credit card with a high Advance Purchase Rate (APR) of 26.99% and can usually be approved even with a poor credit score. Again, the sole purpose should be ramping up your score. Your starting credit limit may be as low as $500, so it’s important to keep spending relatively low on the card to minimize your credit utilization ratio.

Tier 2: No Annual Fee Cards with Decent Multipliers

The second tier includes no annual fee credit cards that begin to offer solid multipliers for purchases. These cards can earn points, miles, or cash back and offer a modest signup bonus. Tier 2 is probably the most competitive market out there since most people want a free card that also offers rewards for spending. Even the most well-traveled or lavish individuals will have at least one of these cards in their wallets for everyday purchases or to round out their spending habits.

The Wells Fargo Propel is a no annual fee travel card with solid multipliers and great cell phone protection insurance. Photo credit: www.wellsfargo.com

The Wells Fargo Propel American Express is a fee-less rewards card that earns 3X back on all travel, including flights, hotels, car rentals, gas, and transit, as well as streaming services and dining (including takeout and delivery). Even though it is a no annual fee card, it offers one of the best cell phone protection plans out there. By paying your cell phone bill using the Propel, the protection plan can reimburse you up to $600 per claim with a $25 deductible, although claims are limited to $1,200 per 12-month period. Though the plan does not cover lost phones, its deductible is the lowest among any plan offered by zero-fee cards.

The Citi Double Cash earns 2% back on all purchases, so there is no need to track categories. Photo credit: www.citi.com

A good example of a no annual fee cashback card is the Citi Double Cash. It earns an unlimited 2% cashback on all purchases: 1% when you buy and 1% when you pay your balance. Since you should always be paying your balance to keep your utilization rate low and not accumulate any lasting debt, I consider the Double Cash a true 2% flat rate cashback card for responsible individuals. The cashback earned from the Double Cash can also be converted to Citi ThankYou points at a 1:1 ratio. ThankYou points are worth about 1.7 cents per point, effectively increasing the card’s return from 2% to 3.4%.

Tier 3: Low Annual Fee Keeper Cards

The next level up comes with small annual fees ranging from $95 to $150 that allows access to more perks, benefits, and even signup bonuses and credits that will effectively offset the yearly overhead. Within Tier 3, you will start to see airline and hotel co-branded credit cards that automatically qualify cardmembers for their introductory statuses. The American Express Delta SkyMiles Gold Card has an annual fee of $99 which is waived for the first year and allows cardholders to check their first bag free on Delta flights. Delta normally charges $30 for the first checked bag, so if you maximize this perk for a round-trip journey, you are effectively saving $60.

No one likes to pay for checked bags. Get the Delta SkyMiles Gold from American Express to waive the fee when flying Delta!

Chase’s Marriott Bonvoy Boundless is another co-branded card that is worth talking about for brand loyalists. Its annual fee is $95, but every year after the account anniversary, the card offers a free night certificate that you can use at any Marriott property, redeemable up to 35,000 points. For example, you can redeem your free night certificate to stay at Hotel Colonnade Coral Gables, Autograph Collection by simply keeping the Bonvoy Boundless for over one year and paying the annual fee. For the same night and room, you will have to pay $292.67 out of pocket, three times more than the card annual fee! These co-branded offerings make for great keeper cards - credit cards with valuable benefits that outweigh the overall cost of having the card.

You can stay at Hotel Colonnade Coral Gables, Autograph Collection with the free night certificate earned from holding the Chase Marriott Bonvoy Boundless. Photo credit: www.marriott.com

Or you can pay $292.67 for the same exact room! Photo credit: www.marriott.com

At Tier 3, you begin to enjoy credit cards that offer transfer partners and can result in incredible redemptions. The American Express Green Card has an annual fee of $150 and earns 3X Membership Rewards (MR) points for dining and travel, including flights, hotels, car rentals, transit, taxis, tours, and ride-sharing services. MR points are valued at 2 cents each and can be transferred to 19 airline partners and 3 hotel partners, making them more versatile than rewards offered by co-branded cards. The Green Card also offers a $100 annual statement credit towards CLEAR membership and $100 annual statement credit towards LoungeBuddy.

If you’d like to apply for the American Express Green Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! http://refer.amex.us/EDWARSGhHQ?XLINK=MYCP

Tier 4: Premium Benefits and Great Multipliers

Tier 4 credit cards provide more benefits and perks than Tier 3 cards and also higher signup bonuses. The annual fees for most of these cards are between $200 and $300. The American Express Gold Card has an annual fee of $250, and many including myself consider it the best dining/supermarket card out there due to its ability to earn 4X MR points on those purchases. It also offers $120 in dining credits ($10 per month) toward Grubhub, Seamless, and The Cheesecake Factory, and $100 in airline incidental credits, all of which effectively lower the annual fee to $30.

If you’d like to apply for the American Express Gold Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! http://refer.amex.us/EDWARS3dEu?XLINK=MYCP 

Grocery store spending is one of the highest expenses for households. Get 4X MR points back when you use the AMEX Gold Card!

Another great Tier 4 card is the American Express Delta SkyMiles Platinum Card. It has an annual fee of $250 and like the Delta SkyMiles Gold Card, you get your first checked bag free. On top of that, you will receive Main Cabin 1 Priority Boarding on Delta flights and an annual companion certificate upon the yearly renewal of your card. The companion certificate can be redeemed for a domestic Main Cabin round trip, of which you are only responsible for taxes and fees for the second ticket. When this perk is maximized, it can yield an incredible return. For instance, flying from Austin to NYC during Thanksgiving 2020 would cost one passenger $695.20. This is certainly not ideal; however, if you must travel with a significant other, you can justify paying $724.40 for two round-trip tickets by applying the companion certificate, effectively bringing the ticket prices down to $362.20 per person.

If you’d like to apply for the American Express Delta SkyMiles Platinum Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! http://refer.amex.us/EDWARSbcu7?XLINK=MYCP

Paying almost $700 for a domestic flight between Austin, TX, and New York, NY is not ideal, but if you must travel for the holidays with a loved one, you can save on their ticket costs by applying the free companion certificate. Photo credit: www.delta.com

Tier 4 currently comprises the smallest grouping of credit cards on the totem pole, but I believe more offerings will emerge for those who are looking for smaller doses of premium experiences but not yet willing to pay a significant annual fee.

Tier 5: Luxury, High Annual Fee Cards with Exclusive Benefits

At the highest echelon for most individuals are credit cards that have annual fees between $400 and $550 and offer extensive benefits and lifestyle perks for cardholders. The U.S. Bank Altitude Reserve Card has an annual fee of $400 but offers a $325 travel credit as well as unlimited 3X points on all mobile payment transactions. You can also get elite status with hotel chains such as Relais & Chateaux, a dozen Gogo Inflight WiFi passes, Priority Pass Select membership, TSA Pre/Global Entry application reimbursement as a statement credit, and 30% off on Audi Silvercar rentals. It is a Visa Infinite card, meaning the minimum credit limit is $10,000, and also offers the Visa Infinite Concierge service for cardmembers.

The U.S. Bank Altitude Reserve Card’s mobile payment multiplier opens so many doors for extra points earning. Photo credit: www.usbank.com

The American Express Platinum Card is another luxury card that offers unique benefits such as a $200 airline incidental credit dedicated to an airline of choice every calendar year, $100 towards Saks Fifth Avenue (split into $50 bi-annually), $200 in Uber credit ($15 per month and $35 in December), Hilton Honors Gold status, Marriott Bonvoy Gold status, access to Delta SkyClubs when flying Delta, and access to the venerable Centurion Lounges offered by AMEX. The Platinum Card has an annual fee of $550 and earns 5X MR points on flights and hotel bookings through the AMEX Travel Portal. The Platinum Card also offers the Centurion Concierge service, which was a significant help when I planned trips to Tokyo and Paris. As you can see, the higher the annual fee gets, the greater the card benefits and perks become, allowing some customers to more than justify the expense.

If you’d like to apply for the American Express Platinum Card, please consider using my referral link. It will continue to help fund my blog operations and help visitors make informed decisions to maximize their rewards. Thank you! http://refer.amex.us/EDWARSDAtF?XLINK=MYCP

A concierge service can dramatically improve your travel experience, especially when you are unfamiliar with the language or the region.

Summary

Depending on your spending patterns and lifestyle choices, credit cards can become one of your greatest assets to strengthen your credit history and save money at the same time. One of the best ways to determine what tier of cards you need is realistically assessing your budget and daily spending habits to choose the card that is suitable for your needs. Even if the card comes with luxury chateaux access or offers premium rental car discounts, it is meaningless if you don’t utilize those perks. I hope my interpretation of the different levels of cards out there helps newcomers understand the benefits that each offers and guides them a step closer to choosing the right card for them.