Make the Most ($$$) Out of Your Credit Card


It seems like everyone wants to earn rewards these days. This can be attributed not only to the natural attraction to “free” stuff that we all share, but also to the recent trend of credit card companies offering consumers literally hundreds of dollars basically just for opening a new account. However, aside from the fact that rewards credit cards aren’t for everyone, there are essentially five things you must know if you wish to maximize the free money attainable via one.

1. Take what your credit score gives you

While credit card rewards don’t start getting too valuable until you reach good credit, it’s very important that you avoid getting ahead of yourself and instead only consider credit cards intended for people of your credit level. You’re simply not going to luck out and get approved for a better card than what your credit score warrants. Applications for multiple credit cards within a short timeframe could also very well damage your credit and make it that much harder to qualify for a decent offer. We therefore suggest getting a sense of your credit standing by using a free credit estimator. If you have average credit or below and cannot find a rewards credit card with no annual fee, we recommend putting the “no annual fee” part of the equation ahead of “rewards” on your credit card wish list in order to minimize the cost of credit building.

2. Cash is king

All else being equal, we recommend cash back credit cards to consumers interested in rewards. Cash is simply the most straightforward, hassle-free rewards currency, given that it can’t be devalued by a credit card company (unlike points and miles) and can be used for anything (also unlike points and miles, which typically must be redeemed for certain goods or services).

3. Use the Island Approach

While a cash back credit card will provide a decent return for minimal effort, it alone will not get you the most valuable rewards. The Island Approach to credit card use holds that if you have good or excellent credit and pay your credit card bills in full every month, you should use a cash back card as your everyday spending vehicle and get one or two additional rewards credit cards to supercharge your rewards earning potential on your biggest expenses. The thinking here is that you can find one card that gives you the most bang for your buck on gas purchases, for example, and another that provides the most points on Hilton Hotel bookings, but you won’t find a single card that does both.

4. Take advantage of initial bonuses

Banks use rewards credit card offers to attract consumers not only for the added credit card business, but also for the potential they have to be long-time, high-revenue-generating customers of their everyday banking, investment and retirement planning services. As a result, big credit card companies like Capital One, Bank of America, Chase, and Citi from time to time offer initial rewards bonuses worth literally hundreds of dollars in order to attract the cream of the credit score crop, so to speak. All you must typically do to earn one of these initial bonuses is either make a single purchase or spend a certain amount over the course of the first few months that you have your card.

5. Watch out for unique rewards program conditions

Last but not least, keep an eye out for tiered rewards programs, caps on your rewards earnings, the possibility of point or mile expiration, etc. These features can make a rewards card look much better than it truly is and thereby trick consumers into applying for the wrong piece of plastic.

By applying these five insights into your credit card game plan, you will be putting yourself in the best possible position to maximize your rewards earning. Therefore, all that’s left to say is, enjoy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Personal Finance , Credit and Debt , Business , Small Business

Referenced Stocks: BAC , C , COF , JPM

Odysseas Papadimitriou

Odysseas Papadimitriou

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