HOW TO RAISE YOUR CREDIT SCORE
Not All Credit Cards are Created Equal.
By Tara Schatz
Credit cards that earn rewards or miles can be a great choice for consumers who have decent credit and pay off their balance in full each month. Credit card companies offer a staggering number of rewards cards, offering all kinds of perks, points, and sign-on bonuses. The best rewards credit cards are the ones you’ll actually use, so it pays to do your research before applying for a new card. In addition to comparing various rewards programs, you should also keep in mind that many cards with awesome incentives also have high interest rates and annual fees.
FINDING THE BEST REWARDS CREDIT CARDS
With so many rewards cards to choose from, it may seem near impossible to choose the best one. The right credit card will give you more than credit for your loyalty. Let’s take a look at the three basic types of rewards cards and what they are offering:
- CASH-BACK CREDIT CARDS
Cash-back cards give you back a percentage of your credit card purchases each month, ranging anywhere from .5 to 1.5%. Cash back is usually in the form of a check or credit toward your balance. Some cards will offer up to 6% cash back on money you spend in specific spending categories, such as gas, groceries, or dining. If you have excellent credit, you will qualify for the biggest rewards. Some cash-back credit cards charge an annual fee, and if you tend to carry a balance on your cards, you will probably spend more in interest than you make in rewards.
- TRAVEL CREDIT CARDS
These cards allow you to earn points or miles that you can redeem for flights, hotel stays, rental cars, and vacations. This can be a great choice for people who are already traveling a lot, especially if you work with a preferred airline or have a favorite hotel chain. The overall value of travel reward cards are greater than cash-back cards, provided you’re paying off the full balance on your account each month. Most airline credit cards charge an annual fee, and there are often restrictions and blackout dates when redeeming points for a flight.
- GENERAL POINTS CREDIT CARDS
General points cards are more flexible, allowing you to transfer points to your preferred loyalty program or redeem them for flights, cash or merchandise. These cards usually come with an annual fee, so to get the most card for your money, it’s important to make sure that the rewards you earn outweigh that fee.
USING BEST REWARDS CREDIT CARDS RESPONSIBLY
Once you choose a rewards card that lines up with your lifestyle and spending habits, you can start taking advantage of those perks. To make the most of those hard-earned rewards, there are a few tips you should be following.
- DON’T USE TOO MANY CREDIT CARDS
If you spread your purchases out among different cards with different rewards, you’re actually diluting the value of those perks. It’s fine to have a card for travel and another for household purchases, but in general, you should focus your spending on the card that offers the best rewards.
- PAY OFF YOUR BALANCE EVERY MONTH
Carrying a balance from month-to-month will quickly negate any rewards you’ve earned. That’s because the interest charged on your purchases will cost you a lot more than the value of any points or miles.
- KNOW WHEN YOUR POINTS WILL EXPIRE
The best rewards credit cards will let you rack up points without an expiration date, but be sure to read the fine print in your credit card agreement. Some cards stipulate that you have to use your rewards within a 12- or 24-month period.
- TAKE ADVANTAGE OF THOSE EXTRA PERKS
Points and miles are just some of the advantages credit cards offer. There may be other incentives you’re not even aware of. Check your agreement to see if you qualify for waived foreign transaction fees, lost luggage insurance, or rental car insurance. Perks like this can save you hundreds or even thousands of dollars.
- DON’T CLOSE YOUR ACCOUNTS
Closing credit card accounts that you don’t use could have a negative impact on your credit score. This is because your score is tallied based in part by your credit utilization ratio. This is the percentage of your total credit that you’ve actually used. The closer you are to your spending limit, the higher your credit utilization ratio. Keeping credit card accounts open, but not in use, will lower your credit utilization ratio and your credit score.
Making the most of your rewards credit card isn’t difficult. The secret is choosing a card that you can really take advantage of and then using that card responsibly.