Chances are you have a credit card. In fact, according to a survey by the Federal Reserve Bank of Boston, a credit card holder on average will have 3.5 cards. Credit cards are apart of our everyday lives and if not managed properly, could lead to financial ruin. When you are researching what is the best credit card to use, where do you go for information? If it's the web, how do you know if the information is correct or unbiased?
Tim Chen, the founder of NerdWallet, created the site to be a resource for the everyday consumer that is looking to find a credit card that matches their needs. But how different is NerdWallet from other credit card sites? Simply put, they have around 5 times the number of listings than other credit card sites because they list ones that are not sponsored (no incentives for someone else to offer them).
Recently, Tim and his site were nominated as one of the Top 20 Money Sites by CNN Money. I asked Tim a few questions telling us more about NerdWallet and some credit card tips to help us out.
1 Tim, what inspired to create your site NerdWallet?
Last year I learned about Fidelity’s great 2% rewards card from a friend. I searched the Internet to see if there was a better offer out there, and was amazed to discover the Fidelity card didn’t show up on any credit card comparison sites! While a few had written a review about the card, none listed it on their rewards credit card page.
Thinking this was odd, I called up my sister, an internet entrepreneur. She explained to me that websites have an incentive to only list products that pay them referral fees, and therefore credit card comparison sites will omit good credit cards to steer you towards mediocre credit cards that pay commissions.
Turns out, 90%+ of credit cards are not sponsored. That’s why NerdWallet lists over 5 times as many cards as anyone else. We fill a huge content gap on the Internet – there is simply nowhere else where you can intelligently sort almost every credit card offered in the US.
Why can’t our big competitors do the same thing? Because their revenues would drop over 90%. Most of them are controlled by investors who are focused on short term profitability. NerdWallet has no costs or investors as it exists today. We’re just a couple of nerds with day jobs, some coding skills, and some free time.
2 What are some of the biggest mistakes that consumers make regarding credit cards? How do you feel NerdWallet can help with that?
We can’t help with the biggest mistake – spending more than you make. We can only help find the best rewards or lowest APRs, because it’s a mistake to leave money on the table when squaring off with credit card companies.
In terms of our blog, we focus on using facts to generate common sense recommendations on how to use your credit card. Typical themes are numbers driven recommendations like, “Don’t pay for rental car insurance” and “Don’t pay taxes with a credit card”.
Credit Card Myths
3 When it comes to reward/balance transfer cards, what are the top 3 myths that each consumer must know?
Myth 1 – Always pay with your credit card when possible, so you can collect rewards.
Most small restaurants, jewelry stores, and shops pay 3-4% merchant transaction fees to the credit card company. They also have to report credit card sales to the IRS. Therefore, you should always ask smaller merchants if there’s a discount for paying cash. It’s not very patriotic, but that’s a whole different story.
Also, many discount gas stations don’t accept credit cards, but are much cheaper. You’re usually better off paying cash than paying an extra 17 cents a gallon to pump at Shell with your rewards card.
Myth 2 – Credit card companies lose money if you pay your bills on time.
This is simply not true. Every merchant has to pay the credit card network an “interchange” fee. Mom & pop stores often shell out 3-4%+ of every dollar you spend to the credit card network. Costco gets away with paying almost nothing due to their size.
More from GFC, Below
This tells you two things.
First, if you ever see a 5% rewards card advertised, like some offerings from Discover and Amex, realize that there’s always a catch. They expect your average rewards to be less than 2.4%, the highest average interchange any card issuer gets.
Second, be wary of rewards that are promised to you when you go to a wholesaler like Costco. Many rewards card have fine print to exclude warehouse clubs from bonus categories. For example, if you pump gas with American Express Blue Cash at Costco, you’re not eligible for 5% back.
Myth 3 – Your credit card covers you if you wreck a rental car.
If you get into an accident, only Diner’s club will act as your primary auto insurance. Primary insurance is great, because your auto insurance premiums won’t go up. However, other credit cards that cover rental insurance only act as secondary insurance, meaning you must file a claim with your auto insurance first, and the credit card will pay for some of the other stuff up to a certain point.
While this means you are usually covered for most huge costs, like vehicle damage, you usually get stuck with a “Loss of Use” charge that can easily add up to over $1,000. Generally speaking, Visa and Diner’s Club will cover this, while Discover explicitly does not cover this. American Express and MasterCard claim to cover this charge on most cards, but don’t expect them to pay! They demand that the rental company provide a fleet utilization form showing that every car was rented out during the time it takes to fix the damaged car. Rental car companies usually refuse to provide this documentation, so renters get stuck with the bill. There are also a few hundred dollars in administrative fees that you get stuck with in an accident no matter what credit card you use.
However, despite all this, we’d still never recommend buying the insurance. The cost of the insurance is simply too high compared to what you’ll likely owe.
Unbiased Credit Card Information
4 There are tons of information on web about credit cards. What would you advise a consumer to be on the lookout for?
If you are looking for a rewards card, be wary of anyone advising you to sign up for a credit card with 1% rewards. You can probably average 2-3% rewards if you have excellent credit – our site lists no less than 10 rewards cards with a 2% base rewards rate.
If you are looking for a low APR card, never get one from a national bank like Bank of America or Citibank. The lowest APR rates available are from your local credit union. Compare those rates to our low APR offerings, and you will have a pretty comprehensive understanding of what’s out there.
5 NerdWallet was just nominated by CNN Money as one of the Top 20 money websites. How does it feel to be in with some good company?
It feels great and we are incredibly excited! We were lucky to have such an established journalist recognize the value of our content. She really took a chance by recommending a lesser known website over more established ones. It’s great that word is spreading about our site and we hope traffic continues to increase. Some of the best feedback we’ve received has been from our users, keep the suggestions coming!
Credit Card Tips and Tricks
6 Any last tips to credit card users?
I believe that the solution to fixing your finances isn’t getting a better credit card, it’s swiping credit cards less often. For the necessities, find a good rewards card. Pay it off first, because reward cards tend to have a higher APR. If you absolutely must carry a balance, put your balance on a low APR card, and never miss the minimum payment.
If your goal is to build credit history, plan ahead by avoiding credit cards with annual fees. Why? If you ever plan on changing credit cards, it’s better to leave the old card active but unused, so that it shows up on your credit report as an untapped line of credit. It’d be a drag to end up with 5 unused credit cards, each with $50 annual fees, 20 years from now! This is why we don’t think you should go for one of the many airline cards with juicy signing bonuses and high annual fees.