We recently received this question from a reader:

What’s the best credit card out there right now for home improvement? I can’t find anything even remotely close to what was offered just a few years ago…

Thanks!

Christina

Undertaking a home improvement project is a huge task.   Smart homeowners will plan out the entire project in advance in order to optimize their spending on time and materials.    Even smarter people, like you will plan out their payment strategy in order to minimize costs and/or maximize rewards.    Good for you for planning ahead.

Well Christina, there are a few options out there for you to maximize your rewards.  The first consideration would be if you are paying off your balance in full, and are looking to maximize your rewards, or are you paying your balance over time, and looking to minimize interest.

If You Are Paying Your Balance In Full

If that is the case, you should seek to maximize your rewards and discounts.  One strategy you might consider is to open up the Home Depot credit card when you make a really big purchase.   It allows 10% off of your first purchase when you apply.   Save that one for major appliances or other large spending.

Once you have taken advantage of that offer, you will want to maximize your return on the rest of your spending.    The Discover card had an offer of 5% cash back on home improvement stores, but only between April and June of 2009.   It is unclear if that promotion will return.   They are offering 5% cash back at grocery stores from October until December.    While you probably can’t find many home improvement supplies at your grocery store, you can purchase gift cards valid at home improvement stores, earning your 5% indirectly.    Double check to make sure there is a grocery store near you that supplies the gift cards for a good home improvement store.     Also make sure that they accept Discover, as it is even less widely accepted than American Express.

If you want to keep things real simple, just sign up for the Schwab Visa that offers 2% on all purchases.   Visa is accepted everywhere, and there is no having to worry if the place you are purchasing supplies counts as a “home improvement” store.

If You Are Carrying A Balance

To be sure, I am strongly against carrying balances on credit cards, ever.   You would be much better off getting a home equity loan, or just saving money until you can afford to pay for your improvements.

That said, it is also possible that you have a leaky roof or some other unsafe condition that can’t wait.    If that is the case, consider a credit card with the lowest interest rate.    The Lowe’s home improvement card also offers a six months “no payments and no interest” promotion on purchases over $299.    This would be advantageous if you feel like you can pay it off within those six months, otherwise, you are just paying interest as usual on the entire balance come next year.

There are also many other cards with low introductory rates.    Just be very careful reading the terms and conditions.      Once the introductory period expires, any purchases made will continue to accrue interest until the lower interest purchase are paid in full first.   This will change under the Credit Card Bill of Rights, but not until next year.

I have never been to Korea.    I don’t plan on visiting Korea anytime soon.   It is nothing against the Koreans and their fine country, it just isn’t high on my list of places I need to visit with my limited vacation time.

That said, I am interested in the American Express card offered through the Korean airline Asiana (not to be confused with their rival, Korean Airlines).

Why Would This Card Interest Me?

Unlike many reward cards affiliated with foreign airlines, this card is available to us here in the States.    The points they offer in their Asiana Club can be redeemed for tickets on any Star Alliance airline, including American carriers such as US Airways, Continental Airlines and the infamous United.    More importantly, the good folks at Asiana haven’t yet received the memo that reward programs should have been devalued.

Reward Formula

For each dollar you spend, you get two miles in the Asiana Club.    You also get three miles per dollar spent at a grocery store.    This later feature can be leveraged if you purchase gift cards at a grocery store.   For example, I can a $1,000 worth of Home Depot gift cards at my local grocer, and use those cards to a new refrigerator there.    Actually, many airlines sell gift cards at grocery stores as well, so you could realistically earn three Asiana Club miles for every dollar spent on another airline. You could even by American Express gift cards, and get three miles per dollar spent everywhere. The only downside is a relatively meager 5,000 mile sign up bonus to get you started.

When it comes time to redeem your miles, Asiana has an eminently logical reward chart that charges based on mileage, not arbitrary zones.     I always had a problem with reward charts that charge more miles for the 100 mile flight from Ft. Lauderdale to the Bahamas then they do for the 3,000 mile flight to Seattle.     With Asiana’s chart, like several other foreign airlines, awards are grouped by round trip mileage flown.   Let’s say you are flying from New York to Frankfurt, Germany.    The round trip is 7,700 miles, so you would only need 75,000 miles to fly in Business Class.   Of course, those miles were accumulated through a mere 37,500 in spending; less if you make purchases from grocery stores.

Fees

There is a $99 annual fee, and it does not appear to be waived the first year.   It does offer a competitive 1.99% introductory APR for the first six months, going to 13.24% after that.    There is actually no balance transfer fee during the introductory period.

Who Would This Card Be Good For?

This would be an excellent replacement for any US Airways, Continental, or United cardholder.    All you would want to do is make sure that future flights were credited to your Asiana Club account in order to make the most of the miles earned with your credit card.    Earning Asiana miles is a no-brainer for anyone still involved with United’s MileagePlus program and it’s reward blocking policies.

Since there is minimal sign-up bonus, and a significant annual fee to justify, this card lends itself more towards people with more annual spend than others.    Like most reward cards, I would not recommend it for people carrying a balance, although it’s low introductory rate and lack of a balance transfer fee might work for people who are confident that they can pay off their balance within six months of receiving the card.    Don’t even think twice about getting this card if you regularly fly Asiana Airlines.

I would like to visit Korea some day, but in the mean time, I will have to make due with an Asiana American Express and perhaps a visit to my local Korean Barbecue.

Cash back cards are very attractive, for obvious reasons.   With them, you are not invested in proprietary loyalty program that can be devalued at a whim.   To the contrary, your cash rewards can earn earn interest for you over time.     For the longest time, 1% was the standard cash back reward, with higher percentages for purchases with the card’s branded affiliate.

Then, things started to get a little complicated.   Some cards offered double cash back in certain spending categories, while others required you to reach spending floors before higher rates of back rewards kicked in.   I prefer to keep things simple, most of the time, and have a cash back card with a flat rate for all purchases.    The Schwab Visa has been the benchmark among flat rate rewards cards, delivering a phenomenal 2%.    It has recently come to my attention that another card, the Fidelity Rewards American Express offers Schwab some serious competition.   Let’s see how it stacks up.

Reward Formula

With this card, you accrue 2 points for every dollar spent.   When your total equals 5,000 points, you may have the points automatically converted into a $50 credit into any of your accounts with Fidelity Investments.

Eligible Accounts

These include brokerage accounts, IRAs, and 529 college savings accounts.

Fees

There is no annual fee.    The Standard Variable APR is 13.99%.   There is a 0% APR on balance transfers for the first six months, however, there is 3% fee on balance transfers in the introductory period, that goes to 4% afterwords.   The foreign transaction fee is specified in the Cardholder Agreement, which is not posted on their website.    Other American Express cards charge a 2.7% foreign transaction fee.    I must add that if you plan on carrying a balance, you probably should not be looking at a reward card.

Other Benefits

There are some travel rewards and merchandise gift certificates that are available for purchase with your points, however, it is difficult to imagine that they are of greater value than cash.

Some Drawbacks

The terms and conditions includes language that says that you will forfeit points if the card is closed by either yourself or themselves.    Since their reward system requires that you spend $2,500 before getting $50 cash back, you are risking up to $50 of rewards at any one time.     That is probably an acceptable risk for most people, unlike cards where the reward are distributed annually.

Verdict

Simply by the fact that the card is an American Express, it has a few disadvantages when compared to the Schwab Visa card.   For one, it is accepted at fewer locations than a Visa card.    Also, the 2.7% Foreign Transaction fee means that you are getting a “negative reward” of .7% whenever you use your card to make purchases in a foreign currency, and possibly with transactions in Dollars with a foreign company.    On the other hand, most people find American Express Card Member Services to be superior in areas such as merchant disputes and car rental insurance.

Getting beyond the Visa/Amex distinctions, this card is very similar to the Schwab Visa.    The rewards are so good, that it is possible that neither company is making much money on these offerings.    These cards exist to attract people to their respective brokerage services.

While some predict that the Credit Card Bill of Rights will mean the end of reward cards, it is my firm belief that affiliate cards like these will become more popular in the future.   It is a win-win for both the cardholder and Fidelity Investments.