With a bit of planning and discipline, credit cards can provide users with real benefits.
These steps can help you maximize the available rewards:
1. Reward types: Before you begin your search, determine the type of reward you are looking for: cash back, travel, gift cards, etc. Once you know what you are looking for, begin your search for the best card for each type of reward.
2. Strategy: After you review available cards and select one or more for the rewards you want, develop a strategy to use your cards to get the most out of their reward terms. You may find that some cards offer different rewards for different types of purchases. For example, a card my offer 6% back for food purchases, another may offer 3% for gas, while another may offer 2% back on all purchases. Develop your “credit card portfolio” based on what is being offered. Understand the cards’ rules and be prepared to play by them.
3. Fees: You want to avoid paying any late fees, which average $34, because these fees quickly undermine any rewards you may earn. On the other hand, annual fees may be worth paying depending on the rewards being offered. For example, if you earn 6% back on purchases, then a $75 annual fee may make sense. You can always call the company and try to have the fee waived. If you signing up just for the sign-up bonus, then you will probably want to cancel the card before the fee is incurred.
4. Apply: Once you have narrowed down the cards with the best offers for you, apply for the credit cards within a two day period to minimize the number of inquiries recorded on your credit report. Multiple inquiries may damage your score.
5. Tracking: Develop a method to ensure you are using the right card for the right purchases. This can be anything from notes, to an Excel workbook to using QuickBooks.
6. Card balances: Keep your credit usage to 20% to 30% of your available credit because your credit score is affected by the amount of credit you use.
7. Payments: Pay off your balance every month. If you allow yourself to carry a balance, the interest rates you incur will diminish or wipe out any rewards you earned.
If you try any of these ideas, let me know how they worked for you!