Should You Pay an Annual Fee?
As the name suggests, a no annual fee card is a card that does not charge a yearly fee for a customer to be able to use it. Along with charging no annual fee, many of these cards also offer rewards through many forms. Usually, cards charge annual fees to make up for costs associated with the bonuses and rewards offered by the card. In many cases, the annual fee is compensated for by the rewards offered by the card. Just because a card comes with an annual fee doesn’t mean it should be ruled out as a great option for you. It comes down to a few factors such as how much you spend, what purchases you typically make, and if you will earn a welcome bonus. The best way to be sure you’re getting the best card for how you spend is to sign up for a free Clyde account. Clyde’s AI calculates the rewards value you will likely earn in the first year of opening a new card.
The Advantages of Paying No Annual Fee
Cards that do not charge annual fees also come with plenty of advantages. One of the most overlooked benefits of no annual fee cards is that they can indirectly help you build and improve your credit score. Consider that no annual fee cards can offer an attraffordable (i.e. no fee) way to increase the total amount of credit you have access to. Assuming you keep your spending amount consistent, increasing the amount of credit you have access will decrease your credit utilization ratio, which is a key component of credit scores.
This ratio indicates how much of your credit you have utilized and accounts for 30% of your credit score. If you currently have only one card and decide to make a large purchase, this could increase your utilization ratio -- thereby decreasing your credit score. However, if you open a new account with a no annual card, you can then spread your purchases across the two cards which will help lower your utilization ratio. It is ideal to keep your utilization ratio below 30%.
The biggest advantage of such cards is that you won’t face out-of-pocket costs when you open your new card. Many no annual fee cards also include the following benefits:
- Purchase protection
- Fraud protection
- Free credit score reports
Although no annual fee cards usually don’t provide top tier rewards, there are still many rewards to incentivize you. Many cash back credit cards with no annual fees offer anywhere up to 1.5% of cashback on purchases. If you look into a travel card with no annual fees, you may still be able to earn competitive miles/points on your travels.
However, it is also vital to realize that while you may not be charged an annual fee, there will most likely still be other charges that you are required to make. Some of these charges include, but are not limited to:
- Foreign transaction fees
- Late fees
- Cash advance fees
Some cards also only offer no annual fees for a limited time period, after which you will have to start paying them annually. It is crucial to look out for these. When looking through various no annual fee cards, take note to compare each card’s APR. Apart from rewards, one of the most important features of a no annual card is its introductory APR offer. Many cards will allow a low APR rate, often even 0%, for a limited period of time. It is important to compare both the period of time for the introductory offer and the rate being provided for this time. The introductory offer rate can be extremely useful if you are looking to make a large purchase or looking to pay down credit card debt. Many cards will also offer sign up bonuses via credit statements, rewards, and cash back.