One recurring question that we have fielded from clients over the past several months has nothing to do with the stock market, Roth conversions, the upcoming election, or Social Security changes.  Instead, it takes some variation of the following:

“Do you have advice on what credit card I should get to replace my Costco American Express card?” 

Perhaps no credit card change in the history of credit cards has ever had such impact or been as newsworthy.  American Express reports that its Costco branded card represents 10% of its outstanding credit cards and 20% of its loan portfolio.  With a lucrative rewards program that has made it a favorite card of personal finance bloggers for years, the TrueEarnings American Express Costco Credit Card has made its way into the pockets of many consumers who now wonder, what next?

What Will Happen To Existing Costco Amex Cardholders?

In April, existing cardholders will receive correspondence from Citibank about the new cards.  In late May or early June, cardholders will automatically receive new Costco Anywhere Visa Card by Citi.  Existing credit lines and rewards points will automatically be transferred to the new Visa card.  The only real inconvenience will be a new credit card number since Visa and American Express have different numbering conventions.  Cardholders will then have to update any automatic recurring payments linked to their existing Costco card.

When Will the Change Occur?

The change was supposed to take place on April 1st but was delayed as American Express settled out final terms with Citi.  Costco will stop accepting American Express and begin accepting only Visa credit cards on June 20th.  All Visa cards – not just the new Costco Anywhere Visa – will be accepted at Costco stores after June 20th.  After June 19th, the existing Costco American Express card will no longer be accepted anywhere.

What Will the New Costco Credit Card Rewards Program Look Like?

Good news – according to the just-posted information from Citi, the new rewards program will be better than the old program.  Cardholders will get 4% cash back on gas purchases (versus 3% on existing Amex card), 3% on travel and US restaurants (versus 2% on existing card), 2% on purchases from Costco (versus 1% on existing card) and 1% on all other purchases.  This generous rewards program will continue with no annual fee.

What Happens to my Credit History and Credit Score – Will They Be Impacted?

The initial expectation was that the card transition would result in at least one credit inquiry and a hit to credit scores.  However, the updated news is that the transaction will be seamless with no credit inquiries, no impact on credit scores, and a complete transfer of existing credit history from American Express to Citi.  This is great news for card holders who have a long history of using the Costco American Express card.

Should I Look for Another American Express Card?

American Express will offer a new alternative card to the Costco card but with two drawbacks – the new card won’t be accepted at Costco (since only Visa cards will) and it appears American Express will require a hard credit inquiry to apply for the new card (which will result in a hit to your credit score).

Many benefits offered by the American Express card, such as car rental insurance coverage and roadside assistance dispatch, are expected to translate to the Citi Card.  However, a few American Express benefits may not transfer – most notably, the extended warranty protection which provides up to one extra year of warranty on top of the manufacturer’s warranty.  Alternatively, Citi provides some perks that American Express does not with the most notable being trip cancellation and interruption protection.

With all of this in mind, there really is not a compelling reason to apply for a new American Express card unless you simply believe that one of the cards in the Amex portfolio is the best card for you.

Should I Look for Another Credit Card?

There is not a “best” rewards card because each family has different spending categories and some families may value airline miles or hotel stays whereas other families want cash back rewards.  The Costco credit card was a really good all-purpose rewards card and will become an even better all-purpose rewards card with no annual fee.  For people seeking the convenience of one credit card that does not require a credit inquiry or require an annual fee, it is hard to beat the new Costco Anywhere Visa.

Families looking to extract the most value from an all-purpose credit card may find flat 2% cash back cards such as the Fidelity Rewards Visa Card and Citi Double Cash Card (both with no annual fee) provide higher annual rewards.  Moreover, families who spend more than $2,000/month on credit cards will generally get the most value from an annual fee card that provides lucrative ongoing rewards with a large sign-up bonus.  Some of the best current offers come from the Chase Sapphire Preferred card ($625 sign-up bonus towards hotels and airfare plus 2 miles for every dollar of spending) and the Barclaycard Arrival Plus World Elite MasterCard ($400 sign-up travel credit plus 2 miles for every dollar of spending).  Reward-seeking consumers who want to optimize rewards should utilize – an excellent website to find the best rewards card(s) based on personal spending.

Final Thoughts

While there was plenty of uncertainty after Costco announced this credit card transition, the uncertainty has been cleared up and the result is an A+ solution for existing cardholders.  Details of the planned transition are extremely customer-friendly and the net result is that Costco members who were not previously using the TrueEarnings American Express card will have even more incentive to use the new Costco Anywhere Visa Card by Citi.

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