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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 BestCreditCard account. BestCreditCard’s AI calculates the rewards value you will likely earn in the first year of opening a new card.
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:
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: