Consumers have not been immune to financial challenges in the grips of a global pandemic. One way lenders are responding is by tightening their standards when issuing credit card accounts as the number of credit card accounts continues to fall.
According to data released in May 2021 by the American Bankers Association, there were 365 million open credit card accounts in the U.S. as of the end of 2020.
That number includes 203 million accounts held by superprime consumers, 98 million held by prime consumers and 64 million held by subprime consumers. According to the ABA data, the number of credit card accounts decreased for the third quarter in a row.1
While the number of prime and subprime accounts dropped to levels not seen since 2015-2016, the number of superprime accounts hit an all-time high, suggesting that those with the best credit have plenty of options to choose from.1
See related: How to choose the best credit card
How many Americans own credit cards?
Despite the decline in credit card accounts, credit cards are found in most Americans’ wallets. Federal Reserve Bank of Atlanta data released in May 2021 found that in 2020, 79% of consumers had at least one credit card or charge card, which is the highest percentage since the Fed began conducting the Survey of Consumer Payment Choice in 2008.2
A credit card is defined as a card that allows the cardholder to make a purchase by borrowing funds paid back to the credit card company later. A charge card is a type of credit card that must be paid off in full every month.
Using the U.S. Census Bureau estimate of 253 million adults in the U.S.,3 that means nearly 200 million American adults have a credit card, a charge card or both.
However, lenders have shown caution when extending new credit, perhaps due to Americans’ financial challenges during the pandemic. Average new account credit lines decreased to $3,696 in the first quarter of 2021 from $5,128 the year before, according to a May 2021 TransUnion report. And the number of credit cards fell from 457.6 million in Q1 2020 to 454.6 million in Q1 2021.4
According to a survey conducted in August 2020 by Travis Credit Union, more and more Americans are going cash-free. Fifty percent of respondents said they used cash less during the pandemic than they did before the COVID-19 crisis. On top of that, 58% said they planned to stop using cash entirely after the pandemic.5
See related: How COVID-19 is possibly leading the cashless revolution
Types of credit cards Americans own
Americans tend to hold a variety of cards, but cash back credit cards are most popular. According to a 2021 survey of 2,000 Americans by The Ascent, from the investing site The Motley Fool, 46% of Americans own a cash back credit card, down from nearly 60% who had a cash back credit card in 2019. Also, 31% own a retail credit card, 25% own a low-interest card and 19% own an airline or other travel rewards card.6
Card ownership by age
Older consumers tend to carry the most cards. According to Experian, in the third quarter of 2020, baby boomers – those between 56-74 – carried, on average, 4.61 cards followed by:
- Generation X – those between 40-55 – who carried 4.23 cards on average.
- The silent generation – those 75 and up – carried 3.64 cards, on average.
- Among younger cardholders, millennials – those between 24-39 – carried on average 3.18 cards and Generation Z – those between 18-23 – carried 1.91 cards.7
Young Americans are waiting longer to get their first credit card, possibly because younger consumers also are dealing with student debt. Additionally, the Credit CARD Act of 2009 bans credit card approvals for anyone under 21 years old unless they have an adult co-signer or can prove they have sufficient income to pay the bills.
However, that doesn’t mean young people are not using credit cards.
- According to Sallie Mae’s 2019 “Majoring in Money” report, 57% of undergraduate students owned a credit card in 2019, and 38% of undergraduates have two or more cards.8
- However, a higher percentage of college students (19%) have only one card, compared with college graduates or people who didn’t finish college (14%).8
- Debit cards are still more popular, and 85% of undergraduate students carry debit cards. Students overall are more likely to use debit (85%) or cash (81%) than credit cards (57%).
- Students prefer cash over any other payment method for in-store purchases of less than $20. Forty-three percent of college students do not use credit cards at all.8
The Ascent survey showed that while nearly 55% of consumers have maxed out at least one credit card, Generation Z (44%) was least likely to do so, followed by baby boomers (48%), millennials (51%) and Generation X (66%).6
However, millennials were most likely to fall more deeply into credit card debt because of the pandemic, according to a CreditCards.com survey conducted in May 2020. More than a third of millennial cardholders – 34% – said they incurred more debt during the pandemic compared to 23% of Generation Xers and 15% of baby boomers.9
Card ownership by state
Where you live can also play a role in how many credit cards you have. In every state, the average number of credit cards owned by consumers dropped in 2020, according to a 2021 study by Experian.7
- New Jersey residents had, on average, the most credit card accounts in the third quarter of 2020 with 4.54. Other states in the top five include Connecticut (4.21), Rhode Island (4.16), Florida (4.15) and New York (4.14).7
- On the low end, Alaska residents had the fewest credit card accounts in the third quarter of 2020, with 3.06 accounts. They were followed by South Dakota (3.22), Mississippi (3.26), the District of Columbia (3.26) and Wyoming (3.28).7
See related: 2020 state debt burden survey
Card ownership by credit score
Superprime (those with credit scores greater than 759) and prime borrowers (those with credit scores between 680-759) make up most credit card account holders. In fact, prime and above consumers represent 82% of all open credit card accounts, according to the ABA report.1
In Q4 2020, there were 31 million new accounts issued for superprime borrowers, 23 million new accounts issued for prime borrowers and 16 million issued for subprime borrowers (those with credit scores less than 680).1
- American Bankers Association Credit Card Market Monitor, May 2021
- The Federal Reserve Bank of Atlanta’s 2020 Survey of Consumer Payment Choice, May 2021
- U.S. Census Bureau July 2019 estimate of U.S. population, and U.S. Census Population by Age and Sex 2019
- TransUnion Industry Insights Report, Q1 2021
- 2020 Travis Credit Union Cash Survey
- The Ascent from Motley Fool, “How Gen Z, Millennials, Gen X and baby boomers use credit cards”
- Experian, “What is the average number of credit cards per U.S. consumer?”, April 2021
- Sallie Mae “Majoring in Money” report, 2019
- CreditCards.com, “Poll: 23% of consumers added to their card debt during the pandemic,” May 2020
Perch is a new mobile app available for iOS that can improve your credit score by incorporating your rent history and recurring subscriptions such as streaming services.
Currently, Perch is only available through the Apple Store. There are some similar offerings out there, but I think this one is better. Itâs completely free and it reports to more credit bureaus.
Read more from our credit card experts.
Ask Ted a question.
Typically, your rental payment history does not appear on your credit reports. Thatâs a shame, because rent is the largest monthly expense for many households. It would be great if paying your rent on time helped you build your credit score.
There are some existing services that facilitate reporting your rent to the credit bureaus, but they typically charge fees. They can also get complicated, since many require your landlord to respond to the tracking company each month or mandate that they receive your payments through their platform). With Perch, you provide your lease details and grant read-only access to your bank account via Plaidâs secure API. That allows Perch to verify your payment history â without bugging your landlord or forcing you to change your payment method.
Even better, Perch can retroactively add up to 24 months of rental payment history to your credit reports with all three major bureaus. This could jumpstart your credit score in a big way. The company tells me their average customer improves their credit score between 60 and 160 points. And many who were previously unscorable instantly land between 670 and 690 â placing them in the âgood creditâ category. Thatâs incredible!
See related:Â How to pay rent with a credit card
Perch also has a novel approach to monitoring subscriptions. Users notify the company which recurring subscriptions they want to include, and Perch provides them with a virtual debit card loaded up to that pre-approved amount. The user pays Netflix, Hulu, Spotify, Apple Music or another subscription service with that virtual card number. They then pay Perch back. Perch reports this virtual card payment activity as an additional tradeline on usersâ credit reports (note that Perch currently reports subscriptions to Equifax and TransUnion; it plans to add Experian by July).
See related:Â I signed up for Experian Boost. This is what happened
I asked Perch founder and CEO Michael Broughton what happens if someone doesnât pay them back â would that end up hurting their credit score? He said no. Perch really wants to help their users build credit, so it will not place a negative mark on a customerâs credit report in that situation â or even charge a late fee.
Instead, Perch relies on proactive measures such as cash flow underwriting and warnings if your account balance falls too low. If you donât pay, theyâll eventually prevent you from making future purchases. Broughton explained that their liability is very limited because they pre-approve these virtual card purchases and the eligible subscription services tend to charge modest amounts. He assured me that no one can get away with buying $500 Nikes and skipping town.
Broughton is a 21-year-old graduate of the University of Southern California. He was inspired to found Perch after he had difficulty securing a loan for a $10,000 tuition shortfall. One of seven children born into a military family, Broughton was the first member of his family to attend college. Heâs now assisting others who wish to improve their financial lives. The companyâs investors include heavy hitters such as Citi, Sequoia Capital, SoftBank and Y Combinator.
The market is huge. FICO reports that 79 million Americans have subprime credit and another 53 million canât be scored because they lack a sufficient credit history. Broughton told me Perchâs initial sweet spot is 18-25 year-olds, but he also noted that many older adults could benefit, particularly immigrants and people rebuilding their credit after a misstep. He has big plans for expansion and believes Perch can benefit 100,000 people in 2021. The app formally launched in late January and is onboarding new customers in weekly batches.
See related:Â How to build credit
Broughtonâs ultimate goal is to spread the gospel of financial literacy and credit building. He wants to help people obtain their first credit cards and other financial products. âWe want to launch you into the credit world on a better foot,â he said. The way I see it, Perch is off to an excellent start.
Have a question about credit cards? E-mail me atÂ firstname.lastname@example.orgÂ and Iâd be happy to help.
Paying the annual fee on a credit card doesn’t mean you’re wasting your money.
In fact, the top travel and rewards credit cards offer welcome bonuses that are worth considerably more than their annual fees, and that’s on top of the cardholder perks and benefits you can receive.
Case in point: The Chase Sapphire Preferred Card* charges $95 per year, yet the sign-up bonus of 60,000 points is worth $750 on its own. Meanwhile, the more luxurious Chase Sapphire Reserve charges a $550 annual fee, but the sign-up bonus is worth $750 in travel, and you get perks like a $100 Global Entry/TSA PreCheck credit every four years, Priority Pass Select membership (valued at $429), a $300 travel credit and more.
Still, a problem can arise when you can’t use the benefits your card offers – or when you cannot (or don’t want to) pay the annual fee anymore.
In that case, you should know credit card issuers can be surprisingly receptive to cardholders who may not be excited about paying their credit card’s annual fee another year. With this in mind, you have some options that can help you avoid annual fees, get something in return or switch credit cards altogether.
See related: When is a credit card annual fee worth it?
You may have more power than you think
According to Howard Dvorkin, CPA and chairman of Debt.com, it’s always worth it for consumers to negotiate their credit card fees or terms. Whether a consumer will get their fees waived is another question, but “it never hurts to ask,” he said.
This is especially true in light of the coronavirus pandemic. As we all know, credit card issuers have been fairly generous when it comes to offering struggling customers relief, with some extending options for deferred payments or waived fees. As an example, a March 2020 statement from Capital One CEO Rich Fairbank noted that the bank was offering assistance to its customers, such as “waiving fees or deferring payments on credit cards or auto loans.”
Dvorkin says consumers can improve their chances of getting their annual fee waived if they have a history of responsible credit use. In some cases, it may be possible to have an annual fee waived altogether, while in others, an account credit may be offered to take the sting out of the fee.
Some credit card issuers even have their own “retention offers” meant to entice you into keeping your card. For example, American Express is known for offering a set number of points for customers who agree to renew their card and pay an annual fee for another year. Sometimes a specific amount of spending is required on the card as well.
On the FlyerTalk website, you’ll even find a running guide of retention offers from several different card issuers, including Amex. After you dig through it, you can find that, as recently as January 2021, at least one person was offered 50,000 Membership Rewards points to renew their Platinum Card from American Express.
See related: Which cards earn American Express rewards points?
6 tips for negotiating annual fees
But how do you make sure you have as much leverage as possible? We interviewed the experts to find out their best tips for negotiating credit card fees:
1. Use the card
Lending expert John Li of Fig Loans says you’ll have the best chances at negotiating your credit card’s annual fee if you use your card frequently.
“At the end of the day, doing so makes the bank money, and a steady flow of transactions puts you in front of the credit card issuer as a worthy customer to build a long-term professional relationship with,” he says.
2. Be respectful
Dvorkin recommends keeping a level head before you pick up the phone. Take the time to state your case, but don’t fly off the handle if you don’t get your way.
“Credit card issuers get angry calls from cardholders all the time, so it helps consumers to be positive when calling to get a fee waived,” he says.
3. Negotiate by phone
While some card issuers like American Express have an online chat feature, you may have better luck negotiating with a customer service agent over the phone. In fact, phone agents can usually perform more services on your behalf versus agents you speak to via online chat.
4. Have a legitimate grievance
Nishank Khanna, CEO of business lender Clarify Capital, says you’ll have a better shot at negotiating if you have a compelling reason for not wanting to pay an annual fee.
“If you’re having this conversation with your lender to begin with, you’ll want to be able to articulate a logical reason for why you deserve to have the fee removed or reduced,” he says. “Customer service representatives are often receptive to legitimate reasons and may have a policy in place to help accommodate customers with specific concerns or circumstances.”
5. Leverage the competition
Khanna also says you can point to other card issuers that may have a better deal right now. Have competitors waived their fees? If you’re looking to knock off a fee on a travel credit card because you haven’t been able to use the card during the pandemic, for example, you should find out how other card issuers are handling the situation.
6. If you’re not satisfied, call again
Persistence can pay off when it comes to negotiating credit card fees and terms. Not only that, but you don’t have to accept the first “no” you receive. If you don’t get the answer you want, you can always try the famous “HUCA” method, which asks you to hang up and try again. You may be connected to a different agent who is more agreeable.
See related: Does applying for a credit card by phone boost approval odds?
What to do when the issuer won’t budge
If you are trying to negotiate an annual fee but can’t seem to make any progress, keep in mind that other options may make just as much sense.
For starters, Dvorkin says consumers who find they cannot negotiate their card’s annual fee should consider opening a credit card that doesn’t have an annual fee and closing their old one.
Note that closing a credit card can lower your credit score by reducing your overall available credit. Depending on how high the card’s credit limit is and what balances you have on other cards, this could raise your credit utilization ratio and lower your score. But this may be a risk worth taking if you can no longer afford your card’s annual fee.
Also, keep in mind some card issuers might let you downgrade your credit card to another card they offer that doesn’t charge an annual fee. You will probably earn a lower rewards rate and get fewer perks if you take this route, but moving your line of credit to a different card won’t cause damage to your credit score like closing an account can.
*All information about the Chase Sapphire Preferred Card has been collected independently by CreditCards.com and has not been reviewed by the issuer. This offer is no longer available on our site.
Surveys consistently show that no credit card reward is more popular than cold, hard cash. Indeed, cash back cards came out well ahead of other types of rewards cards in a recent CreditCards.com survey, which found that close to half of U.S. adults own a cash back credit card.
And for good reason: Instead of having to decipher a complex redemption scheme, you can opt for a simple, straightforward reward and use it in the way that fits you best.
Here we take a look at some of the most common types of cash back redemption, along with some of the restrictions you may encounter when redeeming your rewards.
How cash back cards work
Cash back cards come in a variety of flavors, but they all fundamentally work the same way: As you make purchases with your card, you earn cash rewards at a set rate. There are three major types of cash back cards.
- Flat-rate cash back cards offer the same percentage of cash back for all purchases, usually between 1% and 2%.
- Bonus category cash back cards typically reward some purchases, like groceries or dining, at a higher rate, while rewarding general purchases at 1%.
- Rotating bonus category cash back cards have dynamic bonus categories that automatically change or allow you to select a different bonus category after a certain length of time.
See related:Â What is cash back?
Ways to redeem cash back
Depending on your card and issuer, you may have a variety of choices in how you redeem your cash back rewards. Some issuers even allow you to set up an automatic redemption, meaning your redemption would automatically initiate after a set number of days or after you earn a certain amount in rewards.
The most common ways to redeem cash back are:
- A statement credit
- A direct deposit to a bank account
- A check
- Gift cards
Redeeming cash back as a statement credit
One of the most common ways to redeem cash back is as aÂ statement credit. A statement credit is money credited to your account that reduces your card balance. For example, if you were to spend $1,000 with a card that offers 1.5% cash back on every purchase, youâd earn $15 in cash back rewards; and if you were to redeem this cash back as a statement credit, your balance would decrease by $15 to $985.
Blue Cash PreferredÂ® Card from American Express, for example, requires you to have earned $25 in cash back before you can redeem as a statement credit.
Once youâve met your cardâs redemption requirements, you can simply choose a statement credit as your preferred cash back redemption.
Redeeming cash back as a check or direct deposit
A slightly smaller number of credit card rewards programs let you redeem your rewards for âtrueâ cash back in the form of a check or direct deposit to your bank account. Claiming your cash back in this way gives you a bit more leeway since you can save or spend your rewards however you like instead of having them âlockedâ into a particular card account.
As with statement credits, the requirements for requesting a check vary from card to card, with some issuers requiring you to have earned a minimum amount of cash back before you can request a check and others imposing relatively few restrictions.
Direct deposits tend to be a bit trickier across the board, especially if you donât already have a banking relationship with your credit card issuer.
- TheÂ Bank of AmericaÂ® Cash Rewards credit card, for example, will only let you redeem cash back as direct deposit if you have a checking or savings account with Bank of America.
- TheÂ CitiÂ® Double Cash Card lets you redeem your cash back as a direct deposit only if you have a linked Citi account or a checking account from which youâve paid a Citi credit card bill at least twice. While the Double Cash card requires you to have earned at least $25 in cash back to redeem as a statement credit, thereâs no minimum to redeem as a direct deposit.
Wells Fargo Cash Wise VisaÂ® cardÂ lets you claim your cash back via an ATM (in $20 increments only) if you have a Wells Fargo Bank account.
Automatic cash back redemption
Along with manually requesting a statement credit, check or direct deposit, a number of cards allow you to set up automatic cash back redemption. If your card allows automatic redemption, your cash back is generally distributed at set times or after youâve earned a certain amount.
- TheÂ Capital One Quicksilver Cash Rewards Credit Card and, for example, allow you to schedule automatic cash back redemption via statement credit or check at a set time once per year or once youâve reached a cash back earnings threshold ($25, $50, $100, $200, $500 or $1,500).
- Even some cards designed for credit-builders, like theÂ Credit One Bank American ExpressÂ® Card, allow automatic redemption as a statement credit, offering those looking to improve their financial habits a âset-it-and-forget-itâ cash back savings tool that will periodically knock off a chunk of their credit card balance.
Travel, gift cards and merchandise on an issuerâs online portal
Most credit card issuers also give you the option of redeeming your cash back through a rewards portal for online shopping or as gift cards to select department stores, restaurants, video streaming services and more.
- TheÂ Discover itÂ® Cash Backcard, for example, lets you redeem your cash back for gift cards from shopping partners once youâve earned $5 in cash back (gift cards range from $5 to $200, in increments of $5).
- TheÂ Amazon Prime Rewards Visa Signature card*lets you redeem your points for purchases on Amazon.com, as a statement credit or deposit, or for gift cards and travel â all at a rate of 1 cent per point.
Having the option to use your rewards for travel allows you to enjoy the benefits of travel rewards with a cash back card and is especially common among cash back cards that use points or allow you toÂ choose between cash back and points.
- The Chase Freedom Unlimited is a great example. You can earn unlimited cash back at a rate of 5% cash back on every purchase, which translates to 1.5 points per dollar if redeemed for travel in theÂ Chase Ultimate Rewards portal.
- Similarly, the Citi Double Cash Card lets you transfer your cash back toÂ Citi ThankYou Rewards and redeem for travel rewards, as well as gift cards, merchandise and other purchases through the Pay with Points program.
Cash back redemption options on popular rewards cards
As you can see, cash back redemption options vary considerably from issuer to issuer and card to card. Hereâs a closer look at how cash back redemption breaks down with some of the most popular cash back credit cards.
|Card||Redeem as a statement credit?||Redeem as a check?||Redeem as a direct deposit?|
|Blue Cash PreferredÂ® Card from American Express||Yes (once youâve earned $25 in cash back)||No||No|
|Bank of AmericaÂ® Cash Rewards credit card||Yes (once youâve earned $25 in cash back)||Yes (once youâve earned $25 in cash back)||Yes (into a Bank of America checking or savings account, once youâve earned $25 in cash back)|
|Capital One Quicksilver Cash Rewards Credit Card||Yes, anytime||Yes, anytime||No|
|Chase Freedom UnlimitedÂ®||Yes, anytime||Yes, anytime||Yes|
|CitiÂ® Double Cash Card||Yes (once youâve earned $25 in cash back)||Yes (once youâve earned $25 in cash back)||Yes (to a linked Citi savings or checking account or to a checking account from which youâve paid your Citi credit card bill at least twice)|
|Discover itÂ® Cash Back||Yes, anytime||No||Yes|
Best cash back redemption options
With all those options for redeeming for cash, which one is best?
The key point to consider is whether your rewards lose any value when redeemed in a certain way. You want to make sure you are getting the most value back, so be careful if you redeem for merchandise, which can be worth less than rewards redeemed for straight cash.
That said, unless your issuer offers a bonus for claiming your rewards as a statement credit instead of âtrueâ cash back, you should simply stick to whichever option is most convenient.
One drawback to cash rewards is they often donât feel like actual rewards because they get swept up into your ongoing finances. If that bothers you, you might consider taking note of how much you are receiving in cash rewards, then rewarding yourself by spending that amount on something you want, so that you feel like youâre getting a reward.
Either way, thatâs the best aspect of cash back rewards: Itâs your decision.
Choosing the best cash back credit card for you
Your redemption options are just one consideration when choosing a credit card. Consider these factors:
When shopping around for cash back cards, find the card that will work the hardest for you, not the other way around. In other words, a cash back rate of 5% at restaurants is great, but not if you rarely eat out. Bottom line: Find a credit card that matches the largest portions of your budget.
Also, be honest about how much thought you want to give to your credit card. If you prefer a âset and forgetâ approach, a flat-rate card is a better choice than a rotating bonus category card.
With so many great no annual fee cards, you might wonder why you would ever get a card with an annual fee. But often, the rewards rates are so much better that it actually makes sense to get the card with the annual fee. For example, comparing the Blue Cash EverydayÂ® Card from American Express and the Blue Cash PreferredÂ® Card from American Express, we found that consumers who spend more than $3,200 annually at U.S. supermarkets ($267 per month) were actually better off with Blue Cash Preferred, which has a $95 annual fee.
From redemption options to bonus categories, each cash back card is designed for a different type of consumer. If you havenât found your perfect match yet, try our CardMatchâ¢ tool, which can deliver personalized credit card offers in seconds with no impact on your credit score.
All information about the Capital One Savor Cash Rewards Credit Card and the Amazon Prime Rewards Visa Signature Card has been collected independently by CreditCards.com. The issuers did not provide the content, nor are they responsible for its accuracy.