Best Credit Card is a Myth

Best Credit Card

About 40 years ago I lived in the quaint Pennsylvania town of Mercersburg with a population of about 1,500, but actually there were only around 800 people in the actual town. There were a few stores including John’s Butcher Shop, which was the only grocery store with a very limited inventory. If you needed a box of cereal, the only choice in town was Wheaties or Corn Flakes. 

The town had a fast food joint called Tastee Freez, which was also a popular hangout for teenagers. The Tastee Freez specialities were burgers and shakes. If you ordered the Big T burger the choice was: with cheese or without cheese. Shakes were just as simple with two choices: chocolate or vanilla. Double burgers and strawberry shakes were apparently not invented till years later.

By the way, John’s Butcher Shop would let you pick up items during the week and pay your bill on Friday, when most residents were paid. Furthermore, John did not add interest to the bill and he had a 0% delinquency rate, since word of a “deadbeat” would spread quickly.

Those days of the late 1970s have long faded. 

Life was Simple

Same with credit cards. The choice was Visa or Mastercard and Classic or Gold, usually a $20 annual fee for the Classic or $40 for the Gold, offering a minimum credit line of $5,000.

The American Express card was geared to well-off consumers, but not accepted by many merchants at that time. In fact Visa and Mastercard were accepted by approximately five million merchants while American Express was accepted at 1.5 million. The new Discover card, introduced in 1986, was geared towards those who had weaker credit, offered credit lines usually under $1,000 and did not carry an annual fee. Discover was accepted by less than 500,000 merchants.

Compared to today those few credit card choices from the mid-1980s mushroomed to tens of thousands variations, perhaps far more than 30,000. The combinations are far more endless than customizing a hoagie or a sub.

In 1986, there were only 310 million credit cards in the entire world carrying the Visa, Mastercard, or American Express brands. (Visa 150 million; Mastercard 135 million; American Express 25 million), according to CardData and CardFlash.

At the end of 2019 they were 2.1 billion credit cards globally branded as Visa, Mastercard, American Express and Discover. (Visa 1.2 billion; Mastercard 700 million; American Express 115 million; and Discover 65 million), according to RAM Research and PYRPTS.

In the U.S. alone, Visa has 335 million credit cards, Mastercard 243 million; American Express 55 million; and Discover 60 million or a total of 698 million credit cards at the end of 2019.

If you add Visa and Mastercard debit cards and prepaid cards, then the number jumps by 3.3 billion or well over 5.5 billion total cards globally, according to Bankcenter and CardBuzz.

Best Credit Card Myth

Clearly this is why there is and never has been the “ten best credit cards” or the “ten perfect credit cards.” If you google “perfect credit card” you’ll get 630 million links or results and searching “best credit card” produces 4.4 billion results. Incidentally, the highest ranked credit card sites are paid listings generally offering some good advice while featuring cards from issuers who pay them, usually the largest issuers, according to CardTrak.

In my 30+ years of tracking the credit card business the one question I always get is: “since you’re the expert what is the best credit card?”

My best answer is there is no such thing as a “perfect” or “best credit card,” it’s a myth. Another good answer could be the perfect credit card is to have no credit card.

Other would ask: what is the best credit card for credit score of 705? or what is the best card for rewards; for cash back? for poor credit? etc.

The answer depends on many variables far beyond just your credit score, and more on your life stage. In future lessons or episodes we will explore each of these areas in depth.

If you are young adult or student, and want to build credit for a future low-rate car loan or mortgage then obtaining a secured credit card could be a good move, or hopping on you parent’s account as an authorized user, with the account history included in your credit reports. Another option is finding a sub-prime card offering a decent credit line of say $1000 or more, with reasonable fees. Avoid sub-prime cards with both an annual fee and monthly fee.

if you are in the prime of life and travel extensively for business and pleasure then look at cards with points and miles – the perks can serve you well, especially if you are loyal to a certain brand, but it requires a lot of research. Also note reward card programs can change quickly, so always think short-term, not long term.

If you are a retiree you most likely want convenience and no hassle, perhaps a card with no annual fee and a grace period, and better yet some cash-back. Most retirees value the time they have left so they prefer not to play the credit card game.

Finding the Right Card for You

The way to find the best credit card for you is the same as 30 years ago: interest rate, interest rate, interest rate. A credit card is the most expensive loan a bank offers since it carries the highest risk. It is an open-ended, revolving credit line, unsecured and therefore faces a higher default rate, write-off rate and most susceptible to fraud. 

The number two area is the grace period, and one of the best features offered by the vast majority of credit card issuers. By paying the balance in-full by the due date you can avoid all interest charges.

Number three is to be careful taking up a free balance transfer or 0% introductory rate offer. Make sure you read all the fine print and mark your calendar. While most of these offer a 0% APR for a  a year or longer, they may carry a fee, perhaps 3% or 5% of the balance transferred. While it legally is called a “fee” it essentially is “prepaid interest.”

Number four is a variable interest rate versus a fixed interest rate. Three decades ago 95% of credit cards carried a fixed interest rate, today 95% offer a variable interest rate, based on the prime rate. If prime rate is going up then a fixed rate is best, when rates head lower than variable is best. But it can all change within short-time period, usually one to two billing cycles.

The last point is the annual fee. In 1986 an annual fee was standard practice but came under heavy competition in the 1990s and was largely driven from the market. Today, the annual fee is usually assessed in exchange for a lower interest rate and poor credit, or to pay for the extra goodies like miles or points.

Friends of Cardworthy

While the “perfect” or “best” card is a myth and one of the most highly used forms of click bait on the Internet, there is a card perfectly suited for you.

Come back for more lessons from Professor Cardworthy as we explore all the options and help you find the right card for you.

Don’t Forget the Professor Cardworthy Podcast on Spotify, Google, Apple, Siticher and wherever you get your podcasts. 

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Friends of Cardworthy: CardData; RAM Research; CardTrak; CardFlash; CardWeb; PYRPTS; CardBuzz; Bankcenter; PYVNTS; Ruebud Media; Red3 Media