2 reasons you might want a credit card with an annual fee

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  • It's not unusual to see a credit card with an annual fee, sometimes as much as $450 a year.
  • First of all, you might want to pay an annual fee if the value of a card's perks and benefits offset that fee.
  • You might also need to pay an annual fee if you have poor credit, or no credit, and are limited in the cards you can open to start building up your credit score and qualifying for the cards you want.
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When there are so many different credit cards out there, why would you ever pay an annual fee?

Two reasons in particular spring to mind: First of all, you might want to pay an annual fee if the value of a card's perks and benefits offset that fee. You might also need to pay an annual fee if you have poor credit, or no credit, and are limited in the cards you can open to start building up your credit score and qualifying for the cards you want.

Plenty of people pay an annual fee for their credit cards - some even pay thousands every year. While the motivation to pay $450 a year for the beloved Chase Sapphire Reserve, for instance, is different than the reasoning for paying for a secured credit card to build your credit, both make sense.

Here's why:

If you can get enough benefit from the card to offset the annual fee, it could be worth it

People who have their eyes on the best rewards cards and most generous sign-up or welcome bonuses will probably have to pay an annual fee. One of the more popular travel rewards cards out there, the Chase Sapphire Preferred Card, has a $95 annual fee (waived the first year) but you can earn 60,000 bonus points (equivalent to $750 in travel if you redeem through Chase's portal) once you spend $4,000 within the first three months of account opening.

Even if you choose a cash-back credit card, some of them also offer some huge rewards. For example, the Blue Cash Preferred® Card from American Express offers 6% cash back at US supermarkets up to $6,000 in purchases each year (then 1%). If you can spend at least $61 each week in groceries, you'll be able to offset the annual fee and then some.

Other credit cards that have much higher annual fees also offer other extra benefits that could be worth if, especially if those are services or products you'll pay for regardless if you have the card or not.

Let's say you need to rent cars for a few upcoming trips and tend to purchase primary auto rental coverage. Some credit cards offer this for free as long as you book your rental with them so that credit card can help you save money on those fees. Or you and your family fly frequently with United Airlines and like to check your bags. If you get the United Explorer Card, you can get you and your companion on your reservation can get your first checked back for free. This can save you up to $120 total round trip, which easily offsets the $95 annual fee.

Just because a credit card has some pretty stellar rewards doesn't mean you should sign up for it. However, if you're going to be able to maximize your redemptions and take advantage of all the benefits it offers, a card with an annual fee might be worth it.

Read more: The best no-annual-fee credit cards of 2019

If you have limited or no credit history, you might have no choice but to pay

In some cases, you may have no choice but to pay an annual fee if you have bad credit or a limited credit history. There are secured credit cards - where you're required to put down a security deposit which acts as your credit limit - and unsecured credit cards. Both can come with an annual fee.

Unfortunately, you are limited in your options, but paying for a card with an annual fee for a year or so can help you build your credit. You'll be able to establish a positive credit history which can help you increase your credit score and potentially qualify for other types of credit cards down the line.

Many of these cards don't come with perks like travel miles, but there are some that offer cash-back rewards like the Capital One® QuicksilverOne® Cash Rewards Credit Card. This card comes with a $39 annual fee but you earn 1.5 cash back on all purchases. If you can qualify, you may be able to offset the annual fee by spending at least $2,600 on the card within a year.

Note that there are credit cards for people who need to build credit that don't have annual fees, like the Petal Card. If you're looking for your first credit card, or a good card to build your credit, make sure to research your options.

Disclosure: This post is brought to you by the Personal Finance Insider team. We occasionally highlight financial products and services that can help you make smarter decisions with your money. We do not give investment advice or encourage you to adopt a certain investment strategy. If you take action based on one of our recommendations, we get a small share of the revenue from our commerce partners. This does not influence whether we feature a financial product or service. We operate independently from our advertising sales team.

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Please note: While the offers mentioned above are accurate at the time of publication, they're subject to change at any time and may have changed, or may no longer be available.

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