Should I Get A Co-Branded Credit Card?
WHAT IS A CO-BRANDED CREDIT CARD?
A co-branded credit card is typically a store card from a specific merchant. But instead of just being a retail card, it’s actually paired with a major credit card such as Visa, Mastercard, etc.
IS IT A GOOD IDEA TO GET ONE?
Well, that depends. Let’s talk about some of the pros and cons… Applying to a co-branded card can be a great way for you to earn additional benefits from brands that you’re loyal to. So, if you’re already spending money with a specific merchant, then it may make sense for you to apply to their co-branded card. Some of the benefits may include points, cashback, discounts, and other rewards. These co-branded cards can also help to serve as a credit building tool. If you’re just getting started with your credit, having a major credit card counts more towards your credit than just having a retail card. If building or improving credit is your main goal, opening a co-branded card is not a must. There are other safer ways of building your credit such as through a secured credit card, which typically doesn’t charge the same high fees as unsecured credit cards. You don’t want to end up charging more than you have to just for the sake of building credit. This can lead to a mountain of debt with high interest rates, cancelling out any benefits that the co-branded card provided.
SO MANY TO CHOOSE FROM, WHICH ONE IS BEST FOR ME?
When considering a co-branded credit card, you want to choose a merchant whom you already spend money with. You also want to consider the types of benefits offered, and which are most advantageous to your lifestyle. For example, if you are a world traveler, choosing a co-branded credit card with the airline of you choice can help you to build up points towards the purchase of a flight, receive perks such as preferred seating, early boarding, etc. Perhaps a certain hotel co-branded credit card would make sense for you. If you have a preferred hotel chain that you typically stay at, a co-branded credit card can help you to secure room upgrades, early check-in/late check-out, and earn points towards free stays.
WHAT ABOUT MY CREDIT SCORE?
Keep in mind that new credit makes up 10% of your overall FICO score. So, you don’t want to start applying for a bunch of credit cards, co-branded or retail, especially at the same time. Every time you have an inquiry into your credit because you applied for something, it’s considered a “hard inquiry.” If you have a lot of these hard inquiries, based on the algorithm used, it essentially indicates that you are desperate for credit, and that will lower your score. This will result in you potentially getting denied for some credit and/or not receiving terms that are as favorable.
QUARANTINE SPENDING DURING COVID-19
Many of us have been doing a lot of online ordering during quarantine, whether you’re trying to stock up on toilet paper, masks, disinfectant wipes, or just out of sheer boredom. The merchants many of us are buying from now may not be typical outside of quarantine. So, be sure whichever co-branded card you choose is for a business that you are loyal to year-round, in order to reap the most rewards.
SHOULD YOU CHARGE EVERYTHING TO YOUR CO-BRANDED CREDIT CARD?
Maybe. This can be a debt trap waiting to happen if you don’t manage it properly. I know the rationale behind this approach is to gain as many rewards as possible by charging everything you can to the co-branded card. Now, if you do this and pay it off every month in full, before accumulating any interest, then this could be a way to take full advantage of your co-branded card. However, some people take this approach and get into a lot of trouble. When we start paying for things with credit vs from our bank account, all of a sudden our checking/savings account balance looks pretty inflated and we get a sense of having more money than we actually do. When this happens some people find that they can’t pay their credit card off in full, and interest starts to accrue. As a result, you end up spending more money in interest than any benefit you gained that month from using your co-branded card.
WHEN SHOULD YOU SPEAK WITH A CERTIFIED FINANCIAL PLANNER™ PROFESSIONAL?
Now! Some people are under the assumption that you have to be rich to have a financial planner. There are others who believe they only need to speak with a financial planner if they’re having a serious financial issue. Neither is true. Regardless of your economic situation, a financial planner can help you in truly significant ways. Whether you have a lot of money, a little bit of money, a lot of debt, no debt, unsure about your employer’s 401K options, or any other money related issue, a financial planner can help you navigate through all of these things and put you on the road to achieving your financial goals. Even if you feel very stable with your finances, a financial planner can help you sustain the progress you’ve already made.
WHERE TO GO FROM HERE?
Listen to the On My Way To Wealth Podcast for additional information and specific examples. Want to receive my e-book with free money tips for Gen Xers? Click this link: www.buildabetterfinancialfuture.com Consult with a Certified Financial Planner™ professional as he/she can provide you with the knowledge and expertise critical to help you Build A Better Financial Future!
As always, thank you for checking out my podcast and blog post! If there are any topics you would like to learn more about, or if you would like to schedule a free financial consultation with me, please email me at Luis@onmywaytowealth.com! All of my podcast episodes can be found at www.onmywaytowealth.com and on all major podcasting platforms. For my business site, please be sure to check out www.buildabetterfinancialfuture.com. I look forward to helping you Build A Better Financial Future!