Well it's no secret that banks and credit card companies have been supplying me with plenty of plastic over the years. A typical look at my wallet shows at least 8 cards from 3-5 different banks - the rest would remain in my drawer.
A common (and valid!) question I usually get is "Hey, how do you know which card to use?" or "Don't you get confused? I only use one card." or even "You are not maximizing the use of reward points since you can't accumulate them in one card."
Indeed, confusion ruled in the initial days. I started off applying for one card each from two banks, enough for my use. Then with the advent of roadshows and telemarketing (I am skeptical when they tell me my mobile number and other details are confidential) and free gifts, I started signing up for more cards. Sometimes, it happens when the telemarketers are nice and friendly, and I thought it doesn't hurt me to help them anyway. It gets easier to apply for subsequent cards from the same banks as they already have your information plus, more importantly, your credit payment history.
It is important to manage your credit card expenditure and bills, or your finances in general. More cards do, in some ways, encourage you to spend more. My spending has increased with more cards (not my income though :( ) but thankfully, it is under control. I will leave this topic to another post since I want to address another issue here: namely, which card to use?
I will attempt to articulate my thought process here although I am not sure if it is clear for all. I applied for supplementary cards for my mother and she is confused with me telling her which cards to use.
There are only two general rules to follow:
Rule No 1. If there are ongoing promotions, use the card that qualifies for the promotion. If many cards are eligible, follow Rule no. 2.
For example, if a store advertises a 10%-storewide sale for holders of CB-credit cards, use CB-issued credit cards. This is a no-brainer. Similarly, when dining out, ask if there are dining privileges - if credit cards from XX bank offers 15% off total bill, dish out your XX-credit card from your wallet. If you stick to using only one credit card, then too bad - yes, you accumulate points (good for you!) but at a miserable rate of 0.5%, while I get 15% off a total bill of say $100. That is $15 vs. your point-equivalent of $0.50. You choose.
If the promotion applies to all Visa-cardholders for example, you suddenly realise that any of your five Visa cards qualify. When in doubt, use Rule no. 2.
2. Use the card that ranks the highest in your credit card rating system.
This applies when there is no particular promotion and you are free to choose which card to use. I know your immediate question is - "What are you talking about? I don't have a credit card rating system!" No worries, I will show you mine and you can modify it for your own use.
I use a quantitative measure, i.e. I will not use a card because of its prestige or exclusivity (only for the ladies, or only for the rich), because it is a fair measure. Plus, where I am now, prestige does not count. It's not as if I'm in any tai-tai social circle anyway! I have chosen to use Cash and Cold Storage shopping vouchers as the benchmark. Cash, because cash is king. Thus I use the card which offers me the most cash rebates because I can use cash to buy a.n.y.t.h.i.n.g. since it is a medium of exchange. And why Cold Storage? Because prices are rising, and groceries are necessities. Yes I can make a comparison using Takashimaya Shopping Centre shopping vouchers, but anything I purchase there is not a need. And if groceries are necessities, you ask me, why not NTUC? Simple, because Cold Storage vouchers are accepted widely! Just name it - Cold Storage supermarket, Shop and Save, 7-11 (buy your parking coupons, your bread, etc.), Guardian, Photo Finish, etc. I usually pass these vouchers to my mom when I receive them :)
Okay, so how does my ranking system work? Cash should be clear enough. For Cold Storage vouchers, I visit the individual banks' websites or flip through the booklets they send me with the updated conversion rates. These rates do change as often as the weather! So it pays to do a little bit of research every now and then.
For a sample calculation, let us use hypothetical figures:
Bank A gives 1 point for every $5 spent. For 700 points, it allows you to redeem $20 Cold Storage vouchers.
Bank B gives 1 point for $1 spent. For 3000 points, it gives you a $10 Cold Storage voucher.
Bank C gives 1 point for every $1 spent. For 3500 points, it gives you $20 worth of Cold Storage vouchers.
My rating system tells me I should use Card C, Card A then Card B in this order. If I do not exceed my credit limit and there are no specific promotions (Rule no 1), I will only use Card C to 'maximize' my reward points and receive my Cold Storage voucher sooner.
How did I get this rating result?
Card A's exchange rate is: $20 per 700*5=$3500 of spending, or 20/3500 = 0.57%
Card B's exchange rate is: $10 per $3000, or 0.33%
Card C's exchange rate is: 0.57%, same as Card A.
I prefer Card C to Card A because I assume Card A rounds down the rewards points (it may not be the case), i.e. for $6 spent, you only receive 1 point and a spending of $19 entitles you to 3 points. Over the long term, you receive 4 points for every $25 spent while its Card C provides you with 5 points equivalent (25/5) so Card C provides a better deal in this instance.
Now lest you think that this is complicated, you only have to do this rating once and revise it ocassionally. Let me use my real life example to show you how easy this really is.
Disclaimer: This is for illustration purposes and does not constitute a recommendation to use any particular bank's card! This is not a sponsored post, just a desire to share some tips and my practices with fellow consumers. Follow this example at your own risk - results differ due to differences in spending habits, consumption patterns and spending levels. There is also Vnothing inherently wrong in using only one card to meet all consumption needs, or boycotting the use of credit cards. Pay your credit card bills in full to enjoy the privileges of credit cards usage.
This is an illustration of Rule no 2 (I may use other cards more often in order to follow Rule no 1):
1) UOB One Card
In using this, I applied my rule of Cash is king. This is also a relatively new card so it shows that I am using updated information to revise my rankings.
How this works? Spend $300 ($800) each month for three consecutive months or a total of $900 ($2400) each quarter and receive cash rebates of $30 ($80) for the quarter.
Effective rate: 30/900 = 3.33% cash rebate
Tips: It is close to impossible to keep track of your exact expenditure each month. I usually spend ~$400 each month, over the minimum required of $300. Still it is an impressive 30/1200 = 2.5% rebate! I do not make it a point to hit the $80 cash rebate because there are months when I spend around $500, even though my aggregate bills exceed $1000 usually (recall Rule no 1). The downside is I have to consciously ensure that the minimum of $300 is met else I forfeit the entire cash rebate for the quarter (I have not met this month's minimum yet!).
2) StanChart's Visa Platinum Access Card
I applied for this card only after the telemarketer's persistence.
How it works? It converts every purchase of $100 into 24 equal monthly installments at 5% interest rate and 6% administration fee. I hardly purchase individual items above $100 so this installment scheme is not attractive to me, as such I sign for purchases under $100 using this card and receive double the reward points.
Effective Rate: $20 voucher / (700 points / 2 * $5/point) = 1.14%
3) HSBC Visa/Mastercard Gold
Effective Rate: $20 voucher / (3500 points * $1/point) = 0.57%
Tips: This effective rate is similar to my StanChart platinum cards but I prefer HSBC simply because it provides unlimited supplementary cards for life. Thus both my mom and dad have supplementary cards and my dad uses his card to pay for his petroleum, thereby allowing me to accumulate the points across all three cards.
See how easy this Rating System is? All I do is use the One Card for my first $300-$400 of purchases, subsequently use StanChart's card for any subsequent purchases under $100 and HSBC for the rest. UOB cards used to rank high on my list (I spent a five digit sum in the past year across my various UOB cards) but it fell lower on my ranking system as it changed the terms of its reward system and accordingly, I spent less on my UOB cards.
There you go - I hope you found this post useful for your credit card needs. everyone's smart enough for finance! Now 15 credit cards under your belt does not seem so scary anymore! Grin.
Now this is what I call street-smart. Oh, and did I mention I simply adore credit cards? =)
Note: Rewards information correct at time of writing. The banks have every right to amend their rewards at any point in time. For accuracy, please refer to the bank's website or latest brochures.
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