If there's anything certain about the current state of the economy, it's uncertainty. Inflation continues its upward climb despite the Fed's aggressive attempts to cool it. It seems that every day yet another company announces layoffs. Mortgage rates are at their highest since 2009. It's no wonder that more and more people are wondering whether we're headed toward a recession.
One of the ways to get ready for a recession that doesn't get much attention is getting the right credit card. Whether you've already been impacted by the economic turmoil or want to prepare for its effects, a good credit card can be helpful.
We've spoken to personal finance experts to discuss why it's important to have a well-chosen credit card in your wallet in economic uncertainty—and what makes a credit card recession-proof.
How a credit card can help you in a recession
Ideally, you want to have an emergency fund to serve as a safety cushion to protect you if you're experiencing financial difficulties. However, rising prices make it harder than ever to save money. Plus, you need to have options if your emergency fund dries up or circumstances hit your wallet especially hard.
"Having the right credit card can help temper the financial hit of a recession by having access to credit when you need it," says Kenneth Chavis IV, an award-winning wealth manager at LourdMurray, a wealth management firm in Los Angeles, California.
For those looking for some relief from inflation, it may be worthwhile to consider a cash back credit card, Chavis says. This type of rewards credit card gives you a percentage of your money back when you're shopping for everyday essentials.
Aja McClanahan, a personal finance expert and author of "How a Mother Should Talk About Money with Her Daughter," agrees.
"You can often convert your rewards to cash or a statement credit, which is akin to getting discounts on your purchases," she says.
How to pick a recession-proof credit card
There are plenty of excellent rewards credit cards out there, but not all of them make for a recession-proof credit card. When financial times are tough, you probably don't want to worry about triple-digit annual fees. Luxury perks are also hardly a priority.
Instead, focus on the following factors to pick a card to protect your budget in a recession:
Rewards where you spend most
Look for a card that rewards you for your most common purchases. Chavis recommends considering cards that offer 5% in your everyday spending categories, such as groceries and gas.
The Credit One Bank Platinum X5 Visa® card fits the bill. It offers 5% cash back rewards on the first $5,000 of eligible gas, grocery, internet, cable, satellite TV, and mobile phone service purchases each year, and 1% back thereafter.
Another great option from the same issuer is the Credit One Bank Wander® Card, which earns 5 points per dollar on eligible travel including flights, dining, and gas purchases—and 10 points per dollar when booking travel through the Credit One Bank travel partner site. This card also offers a 10,000-point bonus when you spend $1,000 on eligible purchases during the first 90 days. You can redeem these points for a $100 statement credit, gift cards, or travel.
Either of these cards requires average credit to qualify and an annual fee of $95. The fee should be rather easy to offset. For instance, if you maximize the 5% cash back category on the X5 Visa, you'll get at least $250 in cash back per year—more than enough to cover the card's annual cost. And the Wander card's intro offer will cover its annual fee in the first year.
Lower credit score requirements
When the economy is going through a downturn, credit card issuers might opt to tighten their underwriting standards. This means that it might become harder to get approved for a credit card. For example, we saw that happen in the first year of the pandemic when certain products that require high credit scores, like balance transfer cards, became mostly inaccessible.
For that reason, it's a good idea to pay attention to credit score requirements before applying for a card. If it requires excellent credit, you may have a harder time qualifying in a recession, even if your credit score seems to be up to the task.
Another thing to pay attention to is whether the card issuer offers any payment flexibility. During uncertain economic periods, you want to have additional control over when your bills are due. For instance, with the cards we've previously mentioned—the Credit One Bank Wander and X5 Visa—you can request a new payment date.
It's also a good idea to be transparent with your credit card issuer if you're expecting to fall behind on your payments.
"During COVID, many creditors made concessions for borrowers who experienced financial hardship," McClanahan says. "Though COVID is over, a recession could usher in the need for similar relief. If possible, get a card from a bank with a record of working with cardholders who fall behind on payments."
If you're not sure what your card issuer's policy is and whether the bank can offer any lenience, simply get in touch. It's always better to try and figure out a solution than let credit card issues go unaddressed. After all, they may impact your credit, making you feel the financial effects of late payments long after the recession is over.