This is the 4th part of a series of blogs regarding the banking system in the USA. In the previous blogs of this series, I discussed different bank accounts, credit score and credit cards, how to properly use and maintain your credit cards, and the main concepts necessary to understand the banking system. This last blog is more empirical and subjective. Here I will talk about which cards to get and when, how to use them and take advantage of all the perks in your accounts.
Before we jump right into the topic of this blog, like I previously stated, this is the most subjective of all the blogs and is based exclusively on my experience and my opinion. I'm not a financial expert or affiliated to any bank or credit union. Therefore, all economic decisions, investments, etc. are your responsibility, so please don’t follow my opinion (especially during the tips section) blindly and without confirming any variable that might apply to your specific case (nationality, tax information, visa status, etc.). Finally, all this info has been updated to October 2024; information can change any time so please confirm that all facts are still applicable at the time you read this blog.
Now we can start with our topics. At this point, I will assume that whoever is reading this blog has already read the previous ones, has a savings account and has or just received your SSN. Also, I will skip anything related to referral codes since they were discussed and recommended in the previous blog. Finally, for the last time, everything I state is my opinion and therefore, whenever I say it’s the best or a better option or choose this, it is strictly my opinion but I won’t be stating it in every paragraph. Let’s start your journey on the right foot.
Day one with an SSN, where do you start?
Having your SSN is the start to your credit journey. As explained in a previous blog (Part 2), when you just get your SSN, you won’t have a credit score until after the first six months. Therefore, the first step is to start building your credit history with your first credit card.
The best credit card to start with is the Discover credit card. This basic card doesn’t require having a credit score and offers good benefits. The most important is that it doesn’t have any annual fee and the big variety of cashback options. Like other more advanced cards, it offers 1% cashback on all purchases and 5% in a specific category for a 3-month period, which rotates across the year. It normally has a low credit limit (around $1500) but should be enough to start and do all the basic purchases with it.
By using (responsibly) this credit card for the first six months, you’ll start with a good credit score of 700+ which will open the door for the next step in the credit world.
https://www.discover.com/?ICMPGN=PUB_HDR_HOME
Make your money work for you
Another crucial account to open immediately after obtaining the SSN is a high yield savings account (HYSA). This account works similarly to a normal savings account, but the money stored in that account will earn interest. In other words, you’ll be earning money just for having your money in your account, which you would do anyways. It is important to notice that not all these accounts are the same, some of them block the money for a specific period in which you won’t have access to that money, and you’ll earn the interest for that time. However, the best option is one that doesn’t have that investment period, but you can transfer back and forward within accounts (with the respective time that takes to transfer) at any time and have access to your money all the time.
The account I’m using is Wealthfront. This account is currently giving a 4.5% yearly interest and allows me to have access to my money at any time. Also, using the app, I can divide my savings into different “folders” allowing me to organize them better while earning interest for all of them.
To take maximum advantage of this account, once you receive your stipend/payment or anytime you receive a deposit, make sure to make all your necessary payments (rent, credit cards, health insurance, etc.) and deposits that can’t be made with the credit card. Then transfer everything that’s left directly into the HYSA. From this point forward, all payments and purchases will be made exclusively with credit cards so that all the money in the account will earn maximum interest. Only when an unexpected payment or cash is necessary, then you can transfer back to the normal savings account. By repeating this process, all your payments will be made, and your money will be constantly making the most interest possible while having access to It in case of emergency.
https://www.wealthfront.com/cash
I have a credit score now. What’s next?
It’s time for the second credit card. The goal of this second card will be to have an all-purpose card with a higher credit limit, no annual fee and better perks. Currently, a great option to go to is the Chase freedom flex. This card offers now annual fee and has one of the best cashbacks available, 5% in rotating categories, promotional 5% in Lyft (until March 2025), 3% in dining and drugstore purchases and 1% in every other purchase. One amazing perk it has is the ability to transfer any purchase above $100 to monthly payments (between 6-12 months) without any interest, which when used correctly is an amazing way to pay for flights and trips.
This card can in theory replace the Discover card and be used to pay for everything, however having multiple cards will be necessary for the next strategy I will talk about but also is necessary to have multiple running credits for improving the credit score.
Multiple credit card strategy
Some people call it the two card strategy, but it is much more effective when having multiple cards (normally 4). What we will be doing is basically dividing the credit cards we have into categories for which we will be using each card (Displaying some of the ones I’m currently using):
- All arounders (Freedom Flex + Discover)
- “Groceries”/flexibility (Venmo Visa)
- Specific stores (Amazon Prime Visa)
- Travel (VentureX from Capital One)
Of course, there can be more possible cards and categories, but we’ll focus on these ones to start. The most important category is all arounders. All basic purchases (restaurants, clothes, sometimes groceries, etc.) will be paid with these cards. The crucial part of using these cards is the cash back cycles. Both Freedom flex (FF) and Discover run on a three-month 5% cashback cycle on specific categories which normally don’t overlap. Therefore, we will use the card which would give us the maximum amount of cash back for each category. For example, if FF gives 5% in dining from January to March and Discover gives 5% in the same category but from April to July, we will use FF first and then switch to Discover when the change in cashback happens. This applies to every card, always trying to obtain the maximum cashback or benefits possible.
Groceries card is a weird category, but it refers to a constant expense that is not covered by the other all-purpose cards with a higher cash back percentage. Most credit cards will have a cycle in which groceries will give 5% cashback. However, in the best-case scenario, this would only cover 6 months out of the year. The Venmo Visa card has a really cool flexibility feature, it offers cash back rewards based on your spending habits. You get 3% on your top spending category each month, 2% on your second-highest spending category and 1% in everything else. By using this card exclusively (or mostly) for groceries I get 3% cashback in those months where I don’t have the 5% from the other cards. The flexibility comes in the fact that this same strategy can be applied to any constant purchase. Since the top category is dependent on the month, I can use this same card in the months where I purchase groceries with another card to pay for something else, making it my highest earning category for that specific month.
Specific store credit cards, like the name implies, give special rewards when using them to purchase items from that store while also normally having the 1% cashback on every other purchase outside of the store. In my case, I buy from amazon regularly, therefore having their prime card gives me 5% cashback on every purchase on the site and some extra discounts and benefits. If there’s a store you buy a lot from and they have a card, get it. The name of the game is getting as many bonuses from every purchase as possible.
At this point, I have covered all my basic needs and luxuries with those four cards. But there’s an extra card that can be quite useful if you travel a lot and like (and can afford) luxuries when traveling. Travel cards like VentureX or American Express (Gold and platinum) include a credit amount to be used for reserving hotels, flights and renting cars, as well as offering special rewards when using their travel partners. Also, allows access to airport lounges and credit for TSA precheck. All these perks don’t come for free though, these cards have a yearly fee of over $300 for the Amex gold and venture X and $695 for the Amex platinum. These cards are the definition of you paying for what you get. If you use them properly and use most of your benefits you are getting more than what you pay for the annual fee. Therefore, I don’t personally recommend one of these cards unless you’re traveling at least once per month or two months.
I hope this blog has given you some guidelines about how to make the most out of your credit cards and some insights on which and when to get a credit card. Please remember that despite having many cards can come with a lot of benefits, it’s generally recommended to wait at least six months between applying for new credit cards, having a good credit score is crucial for all these strategies to work.
Have fun getting cashback!
About the author:
Manuel Carmona Pichardo is from Pachuca Hidalgo, Mexico and is a current Ph.D. student in Chemistry. He got his B.S. in Chemistry at Universidad Autónoma del Estado de Hidalgo in 2016 and his MSc in Chemistry from Cologne University in Cologne Germany. Read more.
Further Reading:
Banking in the USA for international students Part 1: the basics
Banking in the USA for international students Part 2: Credit cards and score
Banking in the USA for international students Part 3: Dos and don’ts with accounts