Maximizing Credit Card Rewards

Getting more for your money

Can you get a free vacation just for doing home improvements? Maybe. Issuers competing for your business offer credit card rewards of every variety. You’ll find a reward program to match just about any hobby or interest – offering airfare, hotel rooms, concerts and sporting events, VIP upgrades, gifts, gift cards, restaurants and food, discounts, and of course, the ever popular cash rebate.

Some spenders have figured out how to leverage their purchasing power for perks – especially on the largest purchases. The Wall Street Journal recently reported that homeowners are opting to put entire remodels – upward of $100,000 – on plastic. All to reap the rewards. If you’re spending the money anyway, these buyers surmise, why not get something extra for it?

Your reward preferences

If you want to take advantage of rewards, the first thing you should do is decide what type of program you want to participate in. If you’re a parent trying to make ends meet, a cash-back program could be perfect. If you travel frequently, consider a travel rewards card.

And don’t neglect to examine loyalty programs that require no credit card. Nordstrom’s, Bloomingdale’s and DSW all offer loyalty programs that are not attached to credit accounts, much like your local grocery store.

Your spending habits

Consider where and how you plan to use the card. You don’t have to undertake a major home remodel in order to gain significant benefits from a rewards card. Large purchases rack up points quickly, but the rewards lose their value if you end up with high interest charges. If you need to buy a big ticket item, try to do so during an introductory period so that you can pay off the balance before the issuer starts charging interest.

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As yourself a few important questions: Can you safely use the card for everyday purchases you’d normally make with cash (or a debit card) without letting debt creep up on you? Can you resist the temptation to purchase more than you need to in order to rack up more points? Are you disciplined enough to pay off the balance each month? If the answer to any of these questions is no, the reward could become very costly.

Any downside?

Keep these two things in mind when it comes to your credit score:

  1. Large purchases could cause your credit score to dip, even if you pay off the balance each month. Your credit score is calculated based on your average daily balance, even if you bring the balance down to zero every month.
  2. Any time you charge more than a few percent of the card’s credit limit, your score takes a hit. The highest credit scores are assigned to individuals who use a very low percentage of their total available debt. That applies to each account in addition to your overall available debt.

And consider one last downside – using plastic could cost you more. You’ll miss out on cash discounts offered by some merchants. Also, the price for goods could actually go up for customers who choose to pay with credit. A new federal law allows merchants in 40 states to pass along swipe fees to customers.

Picking a card

Use a free service like Credit Sesame to solicit competing offers from credit card issuers based on your defined preferences. Also, do some research of your own. Here’s a recent list of cards with the best known cash-back programs.

Don’t neglect to examine the card’s terms when you choose your rewards program. Many – if not most – carry an annual fee, at least beginning in the second year. In some cases, like American Express Blue Cash, a small amount of regular shopping earns a rebate large enough to negate the annual fee. And remember that other terms have value, too. For example, some cards now carry no penalty rate – a definite advantage for folks who occasionally make a late payment. (In fact, the new Discover It card advertises no annual fee or penalty rate and a cash back program.)

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