Hey Everyone, we have Dima back again from www.dimascorner.com with some more information about using credit cards to increase margins by sourcing with credit cards. If you missed the first of this 2 part series you can find it HERE. At the end of the post, I will be sharing the credit cards that I am using for sourcing.
Take it away Dima:
This is the second half of the posts about using various credit cards to squeeze out some extra margin when acquiring your FBA inventory. Last week I introduced four credit cards that offer attractive rewards on all purchases, regardless of where you shop and what you buy. I also tried to answer a few most commonly asked questions about credit card usage in that post so make sure you check it out first!
Today’s post will concentrate on credit cards that offer even better rewards on purchases in certain categories or at particular stores. On top of that, I will also share a tip on how you can leverage these even if you don’t source your merchandise in those particular categories.
But before we continue, this is worth repeating:
Credit cards are not to be treated lightly. Do not open new lines of credit if you are carrying any debt on your current cards – fees and interest charges will greatly (and gravely) outweigh any potential benefits if you are unable to pay off your entire balances on time, every time.
Credit Cards that Offer Better Rewards
Category Rewards Cards
Many cards offer higher cashback or points-per-dollar-spent on purchases in certain category(s). Whether one of these cards will be of use to you will depend on the vendors you source your inventory from.
- Target Red Credit Card – this is probably the most well-known card in the FBA community as it gives instant 5% discount on your purchases at Target. Strictly speaking, it’s not a category bonus card since the discount applies to everything, but it only applies to Target purchases so I grouped it here. Typically, it comes with a very low credit limits, but I found that if I reach my limit, I can pay it off with cash at Target service counter and within a few minutes my available credit limit clears (but not every time). Checks and online payments take a lot longer to clear.
- American Express Blue Cash Preferred – 6% cashback on up to $6,000 in purchases at supermarkets per calendar year, 3% cashback at gas stations and “select” department stores. The card currently comes with a $150 sign up bonus and $75 annual fee.
- Wells Fargo Cashback Credit Card – 5% cashback on gas, grocery, and drugstore purchases for the first six months (1% on all purchases after six months), no annual fee. There is also a similar version earning points instead of cashback – essentially the same thing if you redeem points for statement credit. The catch with Wells Fargo is that they typically want to have a “prior relationship” established before approving you for this card, meaning that you need to open a checking account with them first. You need to open the account at a branch, so if you don’t live near one, consider swinging by one on your next trip (sourcing trip!) to a place that has them. I opened my checking account while visiting a friend in Florida in January and a month later applied for the credit card.
- Chase Ink Business Credit Cards – there are various versions of these cards, but the main benefit is five points per dollar spent on office supply purchases. This can equate to 5% cashback when redeeming Chase Ultimate Rewards points for statement credit or could be worth even more if transferring those points to airline programs for award ticket redemptions – I have been able to squeeze as much as 14 cents of value from each point with some of the crazy itineraries I put together making this essentially a 70 points per dollar deal (5 points per dollar “earn” times 14 cents per point “burn”)! Depending on the version of the card, you can get a hefty signup bonus (up to 50,000 points, which would equal $500) and no annual fee for the first year.
- Citizens Bank CashBack Platinum Credit Card – 10% cashback on restaurant purchases, 5% on gas, grocery and drug store purchases for first 90 days (1% on all purchases after 90 days), no annual fee. Few have succeeded applying for this card but if you don’t have Wells Fargo nearby, this might be your next best shot for 5% on groceries and at drug stores.
One thing to note with all these category bonus cards is that you may be able to leverage them to get the same cashback at other stores and categories by buying gift cards. For example, recently I knew I was going to get some stuff at Petco, so while I was sourcing at Walgreens, I grabbed a couple $25 Petco gift cards there, earning 5% back when I paid with my Wells Fargo card, then used those gift cards to make the purchase at Petco. Office supplies stores (Staples, Office Depot, Office Max) have a wide variety of gift cards that can be bought with Chase Ink cards for 5 points per dollar in “office supplies” category.
Also keep in mind that each issuer has the ability to define what they consider a supermarket or a grocery store. I have ran into those issues where my local grocery chain has always qualified for bonus points in supermarket category for Chase Freedom and Citi Dividend (more on these below) but not for AmEx Blue purchases.
Rotating Category Rewards Cards
The last set of cards I wanted to mention offer 1% cashback on purchases at all times and each quarter select a combination of stores and/or categories where they offer 5% cashback or 5 points per dollar rewards. You need to remember to register for those bonus categories each quarter and to keep them all straight in your mind.
- Chase Freedom Credit Card – a simple, no annual fee card, currently offering 5 points per dollar spent at restaurants and Lowe’s – time to stock up on those shipping boxes! Or buy gift cards to other stores you source from and get 5 points per $1 spent. Next quarter bonus categories are gas stations and Kohl’s. As I mentioned before, Chase points can be redeemed for cashback or transferred to airline and hotel programs for potentially even better value. Each quarter the bonus points are limited to first $1500 spent in the bonus categories. This is one of the oldest cards I have in my wallet.
- Citi Dividend Credit Card – very similar to Freedom, no annual fee card, currently offering 5 points per dollar spent in home furnishings and home & garden categories as well as all purchases at Home Depot – more boxes (or gift cards)! Unlike Freedom, you get straight cashback (no points) that you can request in a form of a check in $50 increments. Also, a slight difference is that it limits the bonus cashback to $6000 of spend in bonus categories per year, not $1500 per quarter. So, if you wish, you could get $6000 worth of shipping boxes this quarter, get 5% cashback on that and put the card away until next year. I have had this card since 2004, making it the oldest in my wallet (back then it offered a much better cashback program).
- Discover It Credit Card – an often overlooked card, Discover is still kicking with this card, similar to Freedom and Dividend. With this no annual fee, you can get 5% cashback for shopping at home improvement stores, furniture stores and Bed, Bath & Beyond this quarter. As with Freedom, the bonus cashback is limited to first $1500 in bonus category purchases per quarter. An extra bonus is ShopDiscover shopping portal which consistently has some of the best cashback rates for online shopping.
- US Bank Cash Plus – similar concept but executed differently. Each quarter you get to choose two categories where you can earn 5% cashback (on first $2000 in purchases) plus one category with 2% cashback. I don’t have this card as it now requires a visit to a US Bank branch to apply.
Word of caution: if you decide to research any of these further, be aware of the “card-pimping” blogs and websites out there (good chance that the first few search results will be those). Many try to steer people away from publicly available sign-up offers for these cards to use their affiliate link associated with an inferior offer (but the one that pays them for the referral). Neither Ryan nor myself are part of these programs. I would strongly encourage you to use the bank’s official link to apply for any of these cards to discourage these “pimping” practices. My friend George does a good hilarious job of calling some of these out on his blog if you would like to educate yourself further.
As you can tell, using the right credit card can give you an extra 2%-6% discount when sourcing inventory for your business. If you are just selling a couple things here and there, it will probably not make a big difference, but if you spend thousands (or, hopefully, tens of thousands dollars at some point) on your inventory, these savings, as well as the hefty sign-up bonuses some of these cards offer, will quickly add up to a nice chunk of cashback and other rewards (which are not reported as income, by the way but please note that neither Ryan nor I is a tax professional, and please consult your own tax professional for advice regarding the tax treatment of these bonuses).
Any questions? Feel free to comment below! I am currently on the road again, traveling around South America so it might take me a day or two to get back to you but others might be able to chime in as well.
Back to Ryan again:
A big thank you to Dima for putting this 2 part series post together. If used properly credit cards can be a great way to add some extra margin when purchasing your inventory. For me, when spending $10K plus per month, getting an average cash back percentage of even 2% puts an extra $200 in my pocket every month, and $2400 over the course of one year. This doesn’t include any signup bonuses either, which can be quite hefty.
The credit cards that I am using for sourcing that have been mentioned here are: Target Red Card, US Bank Club Carlson Card, Wells Fargo Cashback, Discover Card, and the Chase Freedom Visa. These combine to give me great rewards and benefit from the spending that I am doing anyway.
What credit cards are you using for sourcing? any additional ones that should be on this list? Please let me know in the comments, and feel free to ask any questions as well.
16 thoughts on “Using Credit Cards to Increase Margins – Part 2 of 2”
Great stuff by Dima, that guy sure knows his stuff 🙂 And thanks for the plug too! When you read screaming posts from plastic pimping blogs “Last Chance to apply for xyz card” just know it is not the last chance lol.
Good question. I also don’t keep track of it on per-item basis, but rather factor in the discounts and cashback in my total calculations for FBA profit/loss. That said, I have yet to speak to an accountant about this so this may or may not have to change.
Another great article Ryan (and Dima!) My question is how do you guys track the cash back and dicount gift card aspect into your cost of goods for bookeeping/accounting? For example, if you bought a $100 Toys R Us gift card for $85, and then you went and spent $50 of that $100 on one item, what would you put your cost of goods at? And when you deposit any extra bonuses from credit card rewards or ebates/fatwallet link rewards, how does this factor into income/expenses?
That’s an excellent question. When buying discounted gift cards I normally allocate the discount to any items purchased. For credit card rewards, I just look at those as extra income and don’t allocate it on a per item basis. So the credit card rewards and ebates, I just factor in as going straight to the bottom line, although currently I have not been including these amounts in my financial results posts.
This is what I was referencing when I mentioned FlyerTalk MS on your About Me page. Your friend Dima almost certainly is familiar with the Manufactured Spend forums.
Pretty solid list. A couple comments: 1) If you’re going to include a non-cashback card like Inks or Carlson then the Arrival card with its 2.2% back when redeemed for travel should be included. 2) Even from a reselling perspective I view the Ink Bold/Plus as a must have, up there with the Fido Amex & Arrival. Office Supply stores have plenty to resell. 3) I prefer the ‘Old’ Amex Blue Cash which gets 5% from drug/gas/grocery after $6500 to the Amex Blue Cash Preferred (‘Up to $6000 spend’ is too low for me). My favorite Amex however is the Business Simply Cash which is 5% back at Office Supply stores. I’ll blow past the $50,000 limit on my Ink and the Simply Cash allows me to get 5% on another $25,000. 4) Word of warning on the Carlson, the 5x Premier version is a great card, but they are known to approve some people for the lower version that only gives 3x. No way to know which one you’ve been approved for until your card comes back. I have first hand experience with this (although after 9 months they did upgrade me to the premier when I called in to complain).
Great info, thanks for sharing!
You are correct, I play the “game” and I did include the Arrival card in my first post. Everything else I agree with. I debated on including the AmEx cards, but decided to keep them out for simplicity. The post was pretty long as is and as you mentioned, the Inks give plenty of spending power at office supplies already to get someone started.
They toysrus card is a specialty card that I use at tru stores. They give 4 points per dollar, but it comes at 150.00 limit a month in paper coupons. I really like it best for the discounts offered though, like each of the next several Thursdays you can get 10% off in store purchases. More are offered occasionally. Barclaycard upromise is great too, 5% cashback for many online stores from their website and an additional 5% for using the credit card. Up to 10% is great cashback. I request checks, up to 999.99 is easy and while I am using it for college tuition, it’s not required.
Thanks for the tips on those cards!
Hi Ryan I don’t plan on applying for any credit cards due to past experiences and I’m learning a lot from your posts and thanks for them. When you began FBA did you fund your sourcing from credit cards or did you have funding else where? Did you have a substantial amount of funding at the start? Thanks hope to hear from you.
Great to hear you are learning a lot from the posts. When I started, and even now, I have only been using credit cards for the rewards purposes. I always have had the cash in the bank to immediately pay off any charge that I made if necessary. I may utilize my credit lines above what I have in cash in the future, but up to this point, I have never charged more than I could immediately pay off. When I started, I had about $5,000 in cash, so I did start with a decent amount of money.
I also use my credit cards to earn rewards. Right now I’m using my Bank of America card for personal use – besides the cash back, I get an extra 10% of what I earned if I deposit my cash rewards into one of my BOFA accounts.
I would like to get another credit card for my FBA purchases and will look at the list that you provided above.
I also like the idea of discounted gift cards that Mark mentioned in his comment.
Have a great day and I’m learning so much from reading your posts.
Sounds like a pretty good reward with the Bank of America Card. Great to hear you are learning from the posts!
This seems logical but I take Dima’s warning at the beginning of the post to heart. My wife and I have some debt problems due to some unforeseen catastrophic events in our lives.
The whole reason we started our business was to earn extra income to get out of debt. So with that said I can tell you we won’t be using this method to source product.
What we have been doing is purchasing discount gift cards on sites like giftcardgranny.com that give us 6-10% off using cash. We also use coupons whenever possible.
But I can see where adding this method to the ones we use could easily put our discounts close to 15% in total.
Best of luck to all who give this a try.
That’s a great tip on the discounted giftcards, and I can understand your unwillingness to use credit cards when sourcing inventory. One point that I probably should have pointed out in the post (and I am quite sure this is Dima’s strategy as well) is that I am only using credit cards to temporarily pay for the items. I always have the cash in the bank at the time I make any charge, as to assure that I don’t have any of the negative impacts of credit cards.
The two are not mutually exclusive! I also take advantage of discounted gift cards and I use one of the cards I discussed in the previous post to earn additional rewards while buying the giftcards, typically the Club Carlson card that gives me 5 hotel points per dollar spent. So I get the discounts and the points.