A credit card used to be just a credit card with nothing particularly fancy about it. These days, however, credit cards are packed full of all sorts of rewards, travel points, and unique features that you simply can't pass up. It’s like winning the lottery, without having the lottery winning horror stories attached.
When you’re evaluating credit cards for their potential rewards, you'll want to pay particular attention to rewards credit card drawbacks like annual fees and limitations on how you can spend your points. A good credit score also matters when we’re talking about rewards credit cards. Aim to keep your credit score healthy and above 720 for a chance at the best cards.
Maximizing your rewards credit cards can be a financial strategy that offers you out-of-this-world perks. Perks that can save you a ton of money on all the fun things you like to do in life including dining out and travel. You can even use this savings for other money goals you want to achieve like paying off debt, boosting your emergency fund, or adding to your retirement savings.
Take advantage of sign-up bonuses
We've already established that most rewards credit cards come with some form of a sign-up bonus. When we're talking travel rewards cards, it usually entails spending a certain amount of money in a short period to get your travel rewards loot. The worst thing you could do with one of these cards is missing out on receiving the sign-up bonus.
It may sound like a no-brainer, but you'll want to make sure and go through your budget before you sign up for your rewards credit card. Figure out if you can safely spend the amount that you need to in the given period to receive the bonus points.
The best way to handle this is to use your credit card like a debit card. Put every purchase you can each month on your new card and then pay it off fully at the end of the month. Not only will you rack up those points, but by paying the credit card off in full each month, you'll not have to worry about interest rate charges and fees.
Another good tip to maximize your sign-up bonuses is to put your spouse or significant other on your account as an authorized user. The Chase Sapphire Preferred Card offers a bonus 5,000 reward points if you add an authorized user within the first three months on top of their 50,000 bonus reward points offer for spending $4,000 in the first three months. However, you’ll want to be careful about adding an authorized user to your account. The authorized user will have full access to your credit line, and you'll be responsible for whatever charges occur on their card.
Know when to sign up
Did you know that there is a right and wrong time of year to sign up for rewards credit cards? Not signing up for your credit card at the right time could cost you over $177 in missed rewards. You’re getting the credit card for all its amazing features, so why not wait until the right time of the year to lock in the most value you can get?
Each reward credit card company releases limited time offers where the point values for signing up are higher in certain months than in others as an incentive for new card holders. For general credit cards, like the Chase Sapphire Preferred card, and airline-specific cards like the Citi AAdvantage, the best time to sign up to maximize your reward points is in November. However, for hotel cards, like the Starwood Preferred Guest credit card, August is the sweet spot to score the best rewards points.
When you're planning a big trip, you'll want to make sure that you sign up for your rewards card at least five to six months out from your trip. Signing up for the card in advance will give you enough time to make purchases to receive your bonus points plus any other special offers before you need to book your trip. You can certainly cancel your credit card once you've used your points to avoid paying the annual fee, but beware that canceling your credit card can have an impact on your credit score.
Cancelling your credit card
Some money experts suggest that signing up for four to six cards a year, and then cancelling them, will only have a small impact on your credit score. However, there are a couple of things you need to keep in mind if you’re thinking about cancelling your credit card after you’ve taken advantage of the sign-up rewards. One in particular is what’s called your credit utilization rate.
Your credit utilization rate is the amount of credit you have available versus the amount of credit that you’re using. Experts suggest that you keep your card utilization rate to around 20%, which means that if you’re available credit was $1,000 on a given card, you should aim for your balance to be no greater than $200.
Another factor to keep in mind is the age of your credit history, which is one of the five key factors for your credit score. If you’ve had credit for a few years now, cancelling a card might not impact you as much as someone who is new to credit.
Lastly, another factor in the credit game is the mix of credit. Credit bureaus want to see a good mix of credit like retail cards, credit lines, and traditional credit cards.
If you’re thinking about cancelling your credit card after you’ve banked the points, make sure you keep your credit utilization rate, credit history, and mix of credit in mind.
Double up your cards
Using a combo strategy with your rewards credit cards can lead to even richer rewards benefits. Some credit cards were just meant to go together, kind of like the beauty of putting peanut butter with jelly.
One of the most talked about credit card pairings is with the Chase Sapphire Preferred card and the Chase Freedom card. Each card works a bit differently, with the Sapphire Preferred card as a true travel rewards card and the Freedom card as the cash back card. The Chase Freedom card offers 5% bonus cash back on purchases from categories that rotate every quarter like gas, grocery stores, and restaurants. You can use the Freedom card for your 5% bonus purchases and then transfer the points to your Sapphire Preferred card to use towards all your travel in Chase’s Ultimate Rewards Program.
There are loads of other credit card combo pairings that will help you lock in points fast with companies like American Express and Citi cards. Credit card pairing is an excellent way to combine a cash back card with a travel card and be able to utilize the points in a variety of ways. Again, make sure you have a credit card strategy that aligns with your lifestyle, but don’t overlook the benefits of combining two cards from one company to maximize your rewards game.
Maximizing your credit card rewards is the name of the game when it comes to scoring loads of points and cash back. If you’re already going to spend the money on purchases each month, why not get a bonus in return? While you're busy buying groceries and gas each month, you could be one step closer towards going on that amazing vacation that you've been dreaming about. That fabulous vacation could cost you very little after you utilize your points, or even nothing if you play your cards right.
Disclosure: The terms and conditions for credit cards, including interest rates and fees, are subject to change. Be sure to check an issuer's website for the most up-to-date fine print.
Image: Alberto Cerriteño