If you have read any of my past posts or visited any of the pages on this site you probably have come across the term credit portfolio. This post will explain the philosophy behind what a credit portfolio really is and how you can tailor one to fit your spending in order to maximize your average cash back and achieve that steady state of high cash back returns I like to call credit card nirvana.
What is a Credit Portfolio?
At the very basic level, a credit portfolio is a collection of credit cards one uses in order to achieve maximum cash back on all their purchases. Depending on someone’s spending habits, credit score, and other life factors, their credit portfolio can be two or three cards or even close to ten. Every portfolio will be different from person to person. A credit portfolio is not a static item, it is dynamic and changes with its owner over time based on those same factors of spending habits and overall personal financial state.
Why is a Credit Portfolio effective?
A credit portfolio is effective because instead of just using one credit card for all purchases, you are using multiple cards spread over a variety of purchases in order to maximize your overall cash back potential. For example, let’s say I have three cards in my credit portfolio: Card #1 gives me 6% on all grocery shopping and 1% on everything else. Card #2 gives me 5% on all gas purchases and 1% on everything else. Card #3 gives me 2% on any purchase. So with these three cards I only use them for purchases where I get the most cash back out of them. If I am shopping for groceries or gas I only use Card #1 and Card #2 respectively whereas if I come across a purchase that does not fall under gas or groceries I would use Card #3. It sounds simple, but so many people generally get in the habit of using just one card for all their purchases so in some cases they might get a nice cash back rate for some purchases but is quickly diminished by all the very low 1% or less they get back on everything else. Or even worse, people will just use cash getting them 0% cash back! It takes a little discipline to start getting in the habit of strategically using your different cards but in the end it will really pay off.
How long does it take to build a Credit Portfolio?
This answer varies for each person because everyone’s financial situation is different. For those who have a high credit score and a solid reportable income, it won’t take too much time applying for and using new cards in their portfolio. For others with lower credit scores and less stable incomes, it may take time to build or rebuild credit in order to get approved for certain cards. But don’t worry, you will get to the same place sooner or later! The key is to have a plan and follow it to ensure you are on the right path towards credit card nirvana. I give the full breakdown of how your plan should unfold here.
What kind of credit cards make up a Credit Portfolio?
The main types of cards include High Spend Category Cards, Catch All Cards, Niche Cards, Force Multiplier Cards, and sometimes Starter and Rebuilder Cards. Each of these types of cards has an important role in the overall portfolio. Because there are hundreds (if not thousands) of different credit cards out there, the objective is to properly identify what exact card will fit best in your personal portfolio. On the Credit Portfolio page of this site you can find a full description of the card categories along with a growing list of my reviews of cards in these categories.
A good and comprehensive credit portfolio is one of the most important steps in achieving credit card nirvana. The goal is to follow your credit plan and identify areas of your spending where you are losing the most in cash back potential. A good credit portfolio cannot be made overnight and will take some time but the quicker you start identifying where you need to improve, the better!