The Benefits of No Annual Fee Credit Cards

6 Min Read | Last updated: August 15, 2023

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This article contains general information and is not intended to provide information that is specific to American Express products and services. Similar products and services offered by different companies will have different features and you should always read about product details before acquiring any financial product.

Explore the benefits of credit cards with no annual fees, including money-saving features and rewards like cash back and travel points. Choose the one right for you.

At-A-Glance

  • You can get a no annual fee credit card to save money and still enjoy a wide variety of rewards and benefits. These cards can also help you build your credit.
  • Not all no annual fee cards are equal, so it pays to shop for one that will help you meet your personal goals.
  • The benefits of no annual fee credit cards may include fraud protection, extended warranty, purchase protection, and more.

Shopping for a credit card requires research and thoughtful consideration. You’ll need to assess which cards you’ll qualify for based on your credit score, what types of rewards will be most impactful based on your spending, and how much you’re willing to pay for an annual fee. While a credit card with a yearly fee might be a smart move for someone that can spend enough to reap the rewards, the benefits of no annual fee credit cards can be far greater than simply pocketing the fee.

 

There are several ways that no annual fee cards, when used wisely, may help improve your credit score. And you can get that improvement without sacrificing the rewards and benefits many people want. To do that, choose a card with features that align with your lifestyle and financial goals and then use it in ways that allow you to maximize the value of those features.

3 Ways No Annual Fee Credit Cards Can Help Your Credit Score

Any no annual fee card has the potential to help boost your credit. Here’s how:

  • Build your credit. Experts note that no annual fee credit cards are often easier to qualify for than an annual fee card if you’re new to credit or a first-time applicant.1 Assuming you pay your full balance on time each month, having a card and using it can help boost your credit score. People with better credit scores typically qualify for auto loans and mortgages with lower interest rates, too.
  • Reduce your credit utilization. Your utilization – how much of your available credit you’ve used – counts for 30% of your FICO® score.2 Suppose your only card is one that you used for a balance transfer or to make a large purchase, and your balance is 50% of the card’s limit. Opening a no annual fee credit card can lower your utilization, which will then be based on the average of the two cards. Experts recommend keeping utilization at or below 30%.3
  • Increase the average age of your accounts. You won’t see this benefit right away. But if you open a no annual fee credit card and hang on to it, it can gradually contribute to the portion of your credit score that reflects your credit history. With a no annual fee credit card this is easy to do since you won’t have to worry about paying an annual fee each year.

It’s worth pointing out that with no annual fee credit cards, you’re not going to risk much in return for these potential benefits to your credit score. If you get a no-annual-fee card and don’t use it, what does it cost you? Nothing. So, there’s no financial downside to keeping the card as long as you’re not carrying a balance month to month or having to pay other common credit card fees.

Rewards from Credit Cards with No Annual Fees

Beyond the benefits to your credit score, no annual fee credit cards can help you manage your money in other ways, too. And since different credit cards offer different incentives, rewards, and benefits, it’s worth the effort to find the right card.

 

Let’s start with the rewards. Although you won’t earn top-tier perks (such as airline lounge access) with a no annual fee credit card, you can still earn some nice rewards. Cash back or travel rewards are most common,4 but some cards offer rewards points that you can spend on a variety of products and services.

 

Flat rate cash back credit cards typically offer 1-1.5% of purchases,5 usually redeemed as a statement credit. Bonus category cash back cards, on the other hand, may allow you to earn more on select categories, such as gas or restaurants, but could offer less for general categories. Travel rewards cards generally allow you to earn points as you make purchases, then use those points either to book travel or to apply toward a previous travel expense.

 

As you consider which of these rewards will be most valuable to you, you’ll also likely want to consider the incentives and/or interest rates offered by the card issuer. The options for no annual fee credit cards may include:

  • A 0% introductory APR can save you money if you use the card for a big purchase or transfer other balances to the card.
  • A low APR, either for an introductory period or ongoing, could allow you to save money in interest while it applies. If you have a rewards card, you may also be able to earn rewards on eligible purchases at the same time. A low APR credit card can also be a good choice if you anticipate carrying a balance on the card.
  • A welcome offer may be offered as a set amount of a statement credit or rewards points, or as a match of the cash back you earn during a specified period.

Benefits of No Annual Fee Credit Cards

Finally, don’t overlook the benefits offered with the card you’re considering. Benefits, unlike rewards, are always there for you – not earned as you spend. The credit card benefits provided with no annual fee credit cards may include:

  • Purchase protection coverage.
  • Extended warranty coverage.
  • Return protection benefit.
  • Fraud protection and alerts.
  • Statement credit for subscriptions and other purchases.
  • Access to ticket pre-sales for events and other entertainment.

Features and benefits will vary, depending on the card in question.

No Annual Fee Credit Cards May Have Other Fees

Before selecting a card, make sure you understand all the associated costs. Keep in mind that no annual fee is not the same as no fee. It’s important to understand when fees are imposed and how much they are. A few examples of other fees you may be required to pay besides interest on balances include:

  • Late fees.
  • Cash advance fees.
  • Returned payment fees.
  • Foreign transaction fees.

Another thing: When applying for a no annual fee card, pay attention to the length of time the lack of fee applies. Is it forever? Is it just the first year, or another fixed amount of time? Keep an eye out for an asterisk next to the “no annual fee” language in promotional materials. If you see one, read the terms and conditions.

The Takeaway

As credit card issuers compete for your business, you can find no annual fee credit cards that offer valuable rewards and benefits. But it pays to do your research and choose one with features that will help you meet your financial goals and match your lifestyle.

Headshot of Allan Halcrow

Allan Halcrow is a freelance writer concentrating in business, human resources, and diversity and inclusion. He is also the author of four books on management.
 
All Credit Intel content is written by freelance authors and commissioned and paid for by American Express.

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