There are countless credit cards that donâ€™t require an annual fee, so why would anyone choose a card that requires them to pay every year? It’s all about the perks. Consider those holders of the exclusive American Express Centurion Card (itâ€™s made out of titanium instead of plastic and charges a $7,500 initiation fee plus a $2,500 annual fee*).Â
Hereâ€™s how to decide if an annual-fee card is right for you. As a general rule of thumb, if you get more value in a year than youâ€™re paying â€“ monetary or otherwise â€“ the fee is worth it.
Do You Have Bad Credit?
If you have bad credit, the value is in the opportunity to have more options (due to your improved credit) later. In other words, it may be your only option because youâ€™ll likely struggle getting approved a credit card with no annual fee. But when youâ€™re trying to build or rebuild credit, a card with a fee â€“ especially if you find one in the double digits â€“ could be worth exponentially more than you pay.
According to Credit Card Insider, â€œThese cards donâ€™t come with great rewards or benefits, but they give you a chance to establish a positive payment record on your credit reports.â€ If you keep your credit card in good standing, youâ€™ll find over time, youâ€™re approved for more and more types of credit. That includes no-fee cards, of course, but also car loans and mortgages.
The issuer of the Deserve Classic Mastercard, for example, looks at expanded applicant criteria, so you have a better chance of approval. It has a $39 annual fee and can help you boost your credit score. It does come with some additional perks (like emergency roadside assistance, cell phone insurance and discounted furniture rental).
Do You Already Have Good Credit?
If you have great credit and a world of pre-approved options at your fingertips, choosing a card with an annual fee can be a great idea. Which one, however, depends on how you spend your money.
If you travel often, youâ€™re in luck â€“ lots of credit cards offer travel- and luxury-based perks. For example, many cards give you travel credit nearly equal to the fee itself. Perks include free checked bags, additional airline points for flights purchased on credit, TSA Global Entry, or access to airport lounges around the world. But if you rarely travel, you wouldnâ€™t get any value from these perks, even though theyâ€™re worth more than the card’s annual fee.
If you regularly put living expenses on the card, then a one with a high cash-back reward could be the right choice. U.S. News gives the following example: â€œSuppose you have a credit card with a $90 annual fee and unlimited 5 percent cash back on purchases at grocery stores. The fee is high, but if you spend $10,000 a year on groceries, your net rewards would be $410, making the card an outstanding value.â€
Are You Trying to Build Your Credit?
Ready to open a new card and weighing your options? CreditCards.com has five tips for comparing cards and deciding which one is right for you:
- Look at the sign-up bonusÂ and rewards youâ€™ll earn just by opening the card.
- Think about your everyday spendingÂ compared with savings and rewards.
- Consider whether the bonus categories match your spending habits.
- Donâ€™t forget about ancillary benefitsÂ and services offered by the card.
- Check the fee-free alternatives.Â
The Bottom Line
Donâ€™t open a fee-based credit card just because the rewards sound impressive. If you’re not able to capitalize on the perks, skip the fee-based card. Many people who pay an annual fee never end up using the perks, so theyâ€™d be better off switching to a no-fee card.
*Curious about the perks offered by the Centurion Card? They include a personal concierge service that is â€œrumored to be able to arrange just about any service, perk, restaurant table, airline seat, theatre seat, hotel bed or outrageous purchase in the world,â€ according to The Points Guy.
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