Credit Card Tier System Explained: How to Go from Starter Cards to Premium Cards

Not all credit cards are created equal. When you're first starting out in your credit journey, most people start with a tier five card and slowly progress up the system. Tier five is the lowest, and tier one is the most prestige.  

Here's a rundown of the different credit card tiers and how to think about it in regards to your long-term strategy. One thing to be aware of is that just because it's a higher tier doesn't mean that it's better for you. 

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Tier Five: Secured cards and Student cards

Tier five cards usually have few benefits, and they're meant to be used as a stepping stone. These cards help build your credit score or to repair it. There are three types of tier five cards: student cards, secured cards, and subprime cards.

Student cards

If you're a student, I recommend applying for a student card.

  • Pros: can (typically) graduate to useful cards
  • Cons: need to be a student (typically)

Secured credit cards

If you're not a student, then I recommend going for a secured card to build or repair your credit history. Learn more about how to choose a secured credit card in this post. 

  • Pros: can (typically) graduate to useful cards
  • Cons: deposit required

Subprime cards

If for some reason you don't qualify for a student card or a secured credit card, them move on to a subprime card. Subprime cards are not ideal because they usually have a monthly fee without providing benefits to justify it. Avoid subprime cards if you can.

  • Pros: no/low requirements; no deposit required
  • Cons: not useful and more costly in the long-term

For most people starting out in their credit journey, I recommend staying with a tier five card for at least 6-12 months before moving to the next level, starter cards. Ideally, you should have a credit score of 650+.

To improve your credit score, pre-pay your cards and leave a small balance to decrease your utilization (pay off the remaining balance in full after the statement closes). 

For example, if your credit limit is $500:

a) Use $400 (no pre-pay)
 = $400 / $500
 = 80% utilization

b) Use $400 (pre-pay)
 = ($400 - $399) / $500
 = $1 / $500
= 0.2% utilization

Learn more about how to improve your credit score in this post. 

Tier Four: Starter or Foundation cards

Starter cards help lay the foundation for your credit. I call it a starter card because it helps you start the rewards optimization process by accumulating points.

Learn more about how to choose a starter card in this post.

Examples of starter cards:

  • Chase Freedom Unlimited
  • Chase Freedom
  • Bank of America Cash Rewards
  • Discover It
  • U.S. Bank Cash+
  • Citi Double Cash

Ideally, the card should have no annual fee and provide some benefits. Within the starter card mix, there are cards that earn 5x back, which might be a better option for some people.

Tier Three: Keeper cards

A keeper card is a credit card where the (net) benefits outweigh the (net) costs. Otherwise, it's not worth keeping the card. The idea is that you should be getting positive expected value from the card.

The Chase Hyatt card is a keeper card that gives you a free night each year, which provides more value than the $75 annual fee.

Learn more about keeper cards in this post. 

Tier Two: Travel Cards

Travel cards are ones that give you spending multipliers for travel. The main issue with travel cards is that you might need to spend substantial amounts of money to break-even or come out ahead.

Examples of travel cards:

  • Bank of America Premium Rewards
  • Chase Sapphire Preferred
  • American Express SPG
  • American Express Premier Rewards Gold

The benefits of travel cards are that they usually have an attractive signup bonus and provide travel protections like trip delay insurance and collision damage waiver.

Tier One: High Annual Fee Travel Cards

High annual fee travel cards are an extension of the travel cards. They usually have a high annual fee of $400-$550.

Examples of high annual fee travel cards:

  • Chase Sapphire Reserve
  • American Express Platinum
  • Citi Prestige
  • U.S. Bank Altitude Reserve

The interesting thing about tier one cards is that they have a lot of features like travel credits that make them keeper cards.

Tier one travel cards also have higher spending multipliers compared to the cards in tier two.

For example, the Chase Sapphire Reserve earns 3x on travel, comes with unlimited Priority Pass access, $100 Global Entry/TSA Precheck credit, and a $300 travel credit to offset the annual fee. 

Not sure which card to get next? Feel free to fill out a free card consultation form.