So Just What is the PlasticIQ Ranking Engine and how does it work?
The PlasticIQ Ranking Engine, which can be used by going to the PlasticIQ home page and initiating the quick survey, makes use of a very complex set of algorithms and business logic in order to derive the personalized estimated value of each credit card and then rank the cards for you. We’ll cover some of the basics of how the PIQ Ranking Engine works here.
The PIQ ranking engine is premised on a very simple concept: that the value of any credit card is simply the sum of all rewards earned (including sign up and other bonuses etc) minus any interest paid on the card, minus any fees and other expenses (e.g. foreign transaction fees) you pay on the card. That’s it!
For those math aces: value of credit card = rewards – interest – fees.
The only component that is arguably missing is card benefits, such as free travel insurance, purchase protection, priority boarding, etc. As most of these benefits are nearly impossible to quantify in any meaningful way, we exclude this component from the PIQ Ranking Engine calculations.
To understand how the PIQ Ranking Engine really works, you first need to understand what information you need to provide it in order for it to do its job. The PIQ Ranking Engine walks users through a short 3-step survey, and gathers the following essential information.
Survey Step 1: Deciding what kinds of credit cards you are looking for.
In the first step, PIQ just gathers some information around the types of cards you are interested in--it's pretty straightforward stuff. First you just specify whether you are interested in a personal, business or student card. Next, you specify what kind of rewards you are most interested in (gas rewards, supermarkets, etc).
Survey Step 2: Interest Payments and Credit Score
In this second step we ask you to estimate how much of a balance you typically carry on your plastic. This will enable the PIQ Ranking Engine to calculate the 2nd part of the formula above-interest payments. What you will typically find is that carrying even a modest balance will utterly wipe out any rewards you might earn from using a given credit card and thus send the overall value of the card into negative territory. That said, for some folks, they may still want to know which card is least negative! For others, it will be an educational eye-opener to the dangers of plastic.
In step 2 we also ask you to estimate your credit level. This just helps us to filter out cards from the ranking that you likely wouldn’t be approved for.
Step 3: Estimating your spending by category.
This is a very critical step in order to get really personalized, powerful results from the PIQ Ranking Engine, and it’s what sets our site apart from pretty much every other site on the web in this space.
PlasticIQ basically asks users to provide rough estimates of monthly credit card spend across 13 major categories (and, for users who really want to go into great detail, there are another 18 minor spend categories which can be viewed with the click of a button, but these generally aren’t high-spend categories, so they tend to be less critical for effective credit card ranking.
When I write my credit card review and comparison blog posts, I always provide a ranking for each card, as well as a comparison to the top-ranked card in that given category. In order to do this, I have elected to use the default monthly spend for each category.
Of course I realize that the default monthly spend may very well be quite different than your own personalized spending patterns—thus my blog post rankings may be inaccurate for you. But guess what?? Yeh—that’s why we have the PlasticIQ Ranking Engine—go ahead and use it and get results that are personalized for YOU!
Here is a table showing our current default spending rates:
| Category | Monthly Spend |
|---|---|
| Supermarkets | $317 |
| Restaurants | $250 |
| Air Travel | $208 |
| Hotels | $125 |
| Gas Stations | $150 |
| Auto Repairs | $167 |
| Telecom/DSL | $92 |
| Cable/Satellite | $83 |
| Department Stores | $167 |
| Drug Stores | $42 |
| Salons/Spas | $50 |
| Electronics | $100 |
| Book Stores (minor category) | $17 |
| Utilities (minor category) | $208 |
| Movie Theaters (minor category) | $25 |
| Total | $2,000 |
So once you have provided all of this information to the PlasticIQ ranking engine, what happens next?
Remember the formula above:
Total card value= rewards – interest payments – fees
Well, that’s what the ranking engine does, it calculates each component of that formula, sums them to a final value, and then ranks the cards from highest to lowest.
Let’s run through an actual case study of one of the credit cards in our database—the very complex Discover More card—to get a better idea of the calculations that are occurring behind the scenes.
Case Study: How the PlasticIQ Ranking Engine Calculates the Value of the Discover More Credit Card.
While you can read our post on the Discover More Card, here’s a quick primer on the rewards for this card:
- 0.25% cashback on your first $3k of spend per year; 1% after you hit $3k except on warehouse purchases, which are always 0.25%.
- 5% cashback on special rotating categories (see the table below)—with spending limits per category which limit how much you can earn at the 5% cashback rate.
So here's how the math breaks down:
Let’s apply the above spending pattern to this card. So, the user is spending $2,000 per month. That’s $24,000 per year, $3,000 of it at 0.25% cashback (that’s $7.50 per year), and the remaining $21K at 1% cashback (that’s $210 per year)—for a total of $217.50 in cashback in year 1.
Now time for the more complicated seasonally based 5% categories. In Q1, this user would have spent $1,449 in airfare, hotel and gas. That’s quite a bit more than the $800 spending cap, thus this person would earn an additional 4% * $800 which is $32 for the quarter (it’s a 5% bonus, but the cardholder has already earned 1% of that 5% in our original calculation above—thus they earn an additional 4%).
In Q2 the card holder would have spent $501 on department stores and home improvement stores. That’s again above the spend limit of $400. Thus, the cardholder would earn 4% * $400, or $16 for the quarter.
In Q3, the cardholder would have spent a total of $900 on hotels, gasoline and movie theaters. However, the spend limit is $300, so they would earn 4% * $300, or $12 for the quarter.
For the month of September, the cardholder would have spent an additional $359 on drug stores and supermarkets; this is again above the spend limit of $200, so the cardholder would earn 4% * $200, or $8.
Finally, in Q4 of year 1, the cardholder would have spent $1,251 on restaurants and department stores. That’s way above the spending cap of $300. Thus, the cardholder would earn 4% * $300, or $12.
So lets total it all up for year 1:
| Reward Type | Cashback |
|---|---|
| Base rewards | $217.50 |
| Q1 rewards | $32.00 |
| Q2 rewards | $16.00 |
| Q3 rewards | $12.00 |
| September rewards | $8.00 |
| Q4 rewards | $12.00 |
| Total Year 1 rewards | $297.50 |
| Total Year 1-3 rewards | $892.50 |
As you can see from the above table, the math works out to show that the Discover More credit card, under those specific category spending assumptions, could generate in the ballpark of $893 worth of rewards over a 3 year period. While you could do all of these calculations by hand for every credit card out there to try to find the best one for you, why not just use the PlasticIQ Ranking Engine to do the crunching for you?
There are no interest charges in this case study, since in the default profile we assume that the cardholder always pays his balance in full. It's also established wisdom that interest charges, even on modest outstanding balances, will completely annihilate any upside from rewards. If you tend to carry balances, PlasticIQ will soon be publishing extensively on how to tackle this situation.
Finally, there are fees. These consist of any annual fees, fees to join the rewards program, and international exchange fees. The default setting PIQ uses in this case study is that 3% of all your spending occurs overseas (this can be changed once you get to the PIQ Ranked Results page). Since the cardmember in our example spends $24K per year, that’s equivalent to $72K over 3 years. 3% of that means the cardholder spent $2,160 overseas during that 3 year period. And a 2% fee levied against $2,160 is $43.20--exactly what is shown in the ranking engine.
Now recalling our card value formula from above:
Value of Credit Card = Rewards – Interest charges – Fees.
Thus...
Value of Credit Card = $893 - $0 - $43.20 = $849
Voila!
I hope you have found this case study educational, and now have a better sense of how the PlasticIQ Ranking Engine works, and the rigor behind it all. The PIQ Ranking Engine has its limitations, and may never be perfect, but we’re always working on making it better, more accurate, faster, more customizeable, etc and would love to hear from you regarding ways to improve it.