If you’ve ever signed up for a credit card, you’ve probably seen a rewards program. Most cards have some sort of cashback program, but others have programs that can earn you thousands of dollars worth of free air travel every year.
Of course, it takes a lot of energy to take full advantage of a credit card rewards program, and with hundreds of credit cards out there, it can be hard to figure out which ones are the best.
Enter the internet. An entire cottage industry of bloggers and forum communities have popped up to help people game credit card rewards programs. This started back in the early days of the internet, when communities were close-knit and kept their secrets close to the chest. Now, the community has been cracked open, and there are dozens of bloggers willing to share their secrets with you.
Before you start gaming credit card rewards programs for yourself, here are 5 things you need to watch out for.
1. Bloggers might be pushing credit cards to make money
Can you trust a blogger recommending credit cards if they’re being paid to promote those cards? Any logical person will tell you that sounds wrong, and yet people are being hoodwinked into signing up for credit cards that might not be the best option for them.
How can you tell if a blogger is being paid to recommend a card? Watching for affiliate links isn’t enough; any smart blogger will set up an affiliate program. Instead, look at the ratio of content. If a blogger is dedicating over 50% of their posts to talk up specific cards, they’re probably in the pockets of the credit card companies.
Look for bloggers you can trust. Ethical bloggers will only recommend cards that they either use, have use, or have heard good things about from their network. They might use affiliate links (we all have to get paid), but they won’t push a card they don’t think is the best.
2. You have to spend money to make money
It sounds like something your dad might say, but in the case of credit card rewards programs, it’s true: you have to spend money to make money.
To put it another way: this isn’t a game for the broke.
Credit card rewards only work when you use credit cards for every financial transaction in your life. And ideally, you have a lot of financial transactions. The more disposable income you have to throw around, the more you’ll make in rewards.
You also can’t carry a balance on any of your cards. Carrying a balance isn’t recommended anyway, but it’s worth talking about again: credit card companies make their money by charging you interest on your balance. If you carry too large a balance, all the money you would be saving by taking advantage of rewards is going towards paying off your interest.
Some of these rewards cards also charge annual fees. For a lot of credit card gamers, that fee is worth the hundreds (or thousands) of dollars they make from rewards. But if you’re not taking advantage of a card’s full potential, that fee could actually cost you money.
3. Your cards will affect your credit score
So here’s the deal: in the long run, as long as you pay off your credit cards, your credit score will probably be fine. Contrary to popular wisdom, having a ton of credit cards does not ruin your credit score.
Here’s what does hurt your credit score:
opening a bunch of new credit cards in a short period of time
having "young" debt
using more than 30% of your available credit
If creditors see you opening a bunch of new credit cards, they see that as a sign that you’re broke and flailing around for some sort of lifeline. This also ties into the whole "young debt" idea. Creditors love long, stable credit histories. And it’s not enough to have one or two credit cards that you keep around for years and years. Your FICO score averages the age of all your cards together, so just one new credit card can mess up your FICO score.
Also, tying back into the whole "don’t carry a balance" thing: you really can’t carry a balance on your credit cards. Creditors will look at your "credit utilization ratio," which shows how much of your available credit you’re using. Using more than 30% is considered unhealthy. This applies to both individual cards and all of your accounts in aggregate, so if only one of your cards is maxed out and the rest are fine, you’ll still see a sizable ding in your credit score.
4. It requires a lot of time and energy
Seriously. Don’t expect to just get a bunch of cards and then watch the rewards flow in. Some credit card rewards gamers have spreadsheets of all their cards, what purchases they get cash back or miles on, and when the rewards are in effect.
On top of that, they have to be really smart about their budget. A lot of people just have one debit card linked to the bank account where they get their paycheck. They then use that card for most of their transactions. That’s relatively easy to keep track of. But juggling twelve different credit cards can make budgeting a whole lot more complicated.
There are places trying to make it better. Wallaby Financial has an app that automates that spreadsheet for you. Just put in which credit cards you have and they’ll tell you which one to use based on your location. Wallaby is also coming out with a credit card replacement that holds all of your card information on one card. Then, by hooking up with your phone, your new, singular piece of plastic will choose which credit card info to use automatically. The Wallaby Card is currently in limited beta.
5. Don’t bother if you don’t love traveling
Most of the rewards programs are focused on travel: get free airplane tickets, hotel rooms, nights on the town. And if you don’t love traveling, it’s kind of a waste.
Of course, a lot of people love traveling. Like, really, really, really love traveling. And people will put up with a lot crazy stuff from credit card companies (or really, anybody) in order to get free travel. That’s basically the plot of Punch-Drunk Love, but swap out credit cards with pudding:
Honestly, after watching that, the whole credit card scheme is starting to look a lot more sane.
Photo: Sean MacEntee