Rewards credit cards typically hook you in with an enticing premise — the chance to build your credit and rack up points that you can later redeem for purchases you already make. When used judiciously, these cards can do just that. It’s no wonder that rewards cards are one of the more popular offerings in credit cards today. In fact, over half of consumers alter their spending habits depending on the rewards in play, according to a 2017 study from TD Bank. However, rewards credit cards do bring their own unique set of risks. If you toss away the fine print that the credit card issuer includes with your rewards credit card, chances are you could be missing out on some of the benefits you signed on just to receive. We’ve zeroed in on the top mistakes you could be making with your rewards and cash-back credit cards, so you can maximize the benefits and limit those risks.
1. Ignoring the Terms of the Sign-On Bonus
Many rewards cards dangle an introductory bonus to make signing up an even more attractive prospect. However, you may not realize just how much spending you have to do in order to qualify for that bonus. Usually you’ll have to reach a certain spending threshold, such as $5,000 within the first three months, in order to cash in on the bonus. Before you sign up for this kind of offer, be sure you’ll be able to pay back such a high balance without causing financial distress. And even if you do cash in on the initial bonus, you’ll want to review the other benefits the card has available and decide whether those perks fit in with your lifestyle.
2. Not Paying the Balance
When you carry a balance from month to month, the amount you’re racking up in interest probably cancels out the benefit of a cash-back rewards program. Also, if you aren’t careful, you could end up accumulating a mountain of credit card debt. The best bet: be strict with your rewards card purchases. Aim to charge only what you can afford to pay off, and don’t let yourself get swayed by unnecessary purchases just to earn more points. If you don’t think you can handle the temptation, a rewards card may not be the best choice for you.
3. Letting the Rewards Expire
Some consumers let their rewards points languish on their credit cards, thinking they can save up for a larger reward. Unfortunately, that strategy can often backfire if the rewards carry an expiration date. This is one area where it’s smart to carefully peruse your rewards card terms and conditions. The last thing you want is to work months or years toward a certain goal, only to see your points evaporate thanks to a “hidden” clause in the contract.
4. Not Shopping Around for the Right Fit
Patience is key. You don’t want to sign up for a card that offers benefits you won’t really use or that will tempt you to make purchases you don’t really need. The card that is best for your particular situation is likely one that offers benefits on the categories where you spend the most, such as groceries or gas. You could also opt for a card that will reward you with points or cash back regardless of the type of purchase.
5. Not Maximizing the Full Benefits
When people sign up for rewards credit cards, they’re typically looking to earn points or cash back toward high-dollar purchases, such as airfare and hotel stays. By focusing on these categories, you might be missing out on maximizing the full benefits of your card. You can often earn several points per dollar on other categories, such as gas, dining, restaurants, and entertainment. Make sure that you review the list of merchants that offer extra points when you use your card — it can actually make good financial sense to use plastic in these scenarios.
6. Overlooking the Annual Fee
Some rewards cards come with a steep annual fee in exchange for certain travel perks, like airport lounge access or TSA pre-check-in. But if you aren’t going to use these benefits on a fairly regular basis, you’re better off searching for a different card that offers a minimal or no annual fee.
A rewards credit card can be a very helpful tool as part of your overall credit-building game plan. For some additional assistance fine-tuning your credit report, reach out to Ovation Credit for a free consultation.