Playing the Points Game: 5 Credit Card Mistakes

By Jeannie Bidner, CFP?

Have you been thinking about getting a new credit card for the points or miles? With so many credit card companies offering rewards, how do you choose? First, don't assume because your favorite social media influencer is promoting a card that it's right for you. For me, choosing the right credit card is personal. To maximize credit card rewards, you need to consider your spending patterns and type of rewards you want. ?

I know first-hand that some of these credit card sign-up bonuses could turn into major perks like a first-class upgrade on an international flight. So, here's my story.

Four of my girlfriends and I planned a 40th birthday trip to Thailand. This was our time together. ?We left our kids and families behind, and we wanted to make the most of this girls' trip. I wanted to use miles to help cover my flight, so I checked to see if my preferred airline offered a credit card. At the time, they had an offer with a 100,000-mile sign-up bonus. It came with a hefty annual fee but had a lot of other benefits like membership to the airline club, CLEAR, TSA, Uber discounts, and more. I travel often, so I decided for me it was worth it and got the card.

With that sign-up bonus, I was able to get an upgrade to first class for my Thailand girls' trip—and two of my other girlfriends were also upgraded. That's a big deal when you are in the air for 12 or 13 hours. I had a luxurious seat in my own cubby that fully reclined into a lie-flat bed with my own TV and tabletop space. Not to mention the non-stop food and beverage service, custom blankets, and personal care package. It's the only time I've ever felt like I didn't want to get off the plane.

To make it all work and to do this thoughtfully, I had to do my homework. Whenever you open a new credit card, no matter how good the offer, it could lead to debt troubles if you're not careful, and excessive debt can make it difficult to reach other financial goals. Keep in mind that ideally, you should pay off your credit cards each month to avoid overspending or paying a high interest rate. So, while the rewards may be tempting, beware of these five credit card mistakes, and here are ideas on how to help avoid them.

Mistake 1: Choosing a credit card with a bonus spending requirement that is too high for you

Many credit card offers come with a spending requirement to earn the sign-up bonus. Here's an example: Spend $4,000 in the first three months to earn 75,000 miles. You don't want to put yourself in a situation where you must spend more than you can afford to get the sign-up bonus.

Do this instead: Before you apply, be realistic and consider: Can you afford to spend that amount of money in that timeframe? Look for a credit card offer that matches what you typically spend in a month.

One more thing that's not often talked about in the credit card blogging world: Be aware that the sign-up period starts the day your card is approved, not the day it arrives in the mail. That shortens the timeframe to meet the bonus spending requirement and could cause you to miss the deadline if you aren't careful. So, mark your calendar with the date your card was approved and count forward the appropriate number of months to understand how much time you have to complete the required spend.

Mistake 2: Choosing a card that doesn't match your lifestyle

Before our trip to Thailand, my friends and I talked a lot about credit cards because we were all looking for a way to use points or miles. We compared notes on the different offers we were considering and why. There are credit cards that offer miles, points, or cash back based on spending in certain categories like gas, groceries, or dining out, which leads me to the next mistake: If you don't pick a card that matches your own spending pattern, you won't maximize rewards throughout the year.

Do this instead: Choose a card that rewards how you spend. For example: If you spend a lot on groceries and gas, look for a card that offers 2x or 3x points for those categories. If you spend a lot on dining out and travel, look for a card that offers extra rewards for those categories. By matching your lifestyle and spending pattern to the card offer, you will be able to earn rewards by spending on the things you already do.

You might find that using more than one card could give you the greatest rewards. That's what I do. I have one card I use for all my travel-related expenses to earn miles and another one I use for daily expenses to get cashback. But this only works to your advantage if you pay your balance in full every month.

Mistake 3: Applying for a credit card you may not qualify for

Some of the most generous credit card offers require you to have excellent credit. If you apply for a card and you don't have the required credit score, you could be rejected. And that could turn into a negative hit on your credit report.

Do this instead: Know your credit score, and make sure it matches the credit requirement for the specific card you want. Credit bureaus like Experian offer a free credit score. Some banks and credit card companies also offer a free credit score.

Another thing that's not often talked about: If you're thinking about applying for a credit card that you had in the past, you may not be eligible for the sign-on bonus within a certain time period, sometimes two or three years. Read the fine print of the offer or call the company to make sure you are eligible to earn the sign-up bonus.

Mistake 4: Going into debt to get credit card rewards

Using a credit card to get points can feel like you're rewarding yourself. But it could come with a big risk—going into debt. Current credit card interest rates average around 24%. Let's say you racked up $5,000 to get extra rewards and now you can't pay the balance. Even if you paid it off in a year, it would cost you over $600 in interest. And that's if you didn't charge another penny.

Do this instead: Don't charge more than you can pay off every month. One way to do this and still get points is to use your credit card in place of a debit card for everyday expenses that are already in your budget.

Mistake 5: Paying with a credit card for items that charge a processing fee

Last but not least, be careful about charging things like rent, utilities, or tuition. While retailers usually absorb the standard credit card processing fee which is around 3%, landlords, utility companies, and other nonretail organizations are often unwilling to take that hit. If that's the case, the extra processing fee could be charged back to you.

Do this instead: Find out if you'll be charged a fee before you pay this type of bill on a credit card. Then do the math. If the fee is 3% and you're getting a 2% cash back reward, you're canceling out your reward.

Play to win

Maximizing credit card rewards could feel like a game, but it's important to exercise caution as that game could have consequences. To help you win, you must be strategic and go in with a plan. Know what you can charge and what you can pay off each month, and stay on top of your debt. Then, when you're ready to use the rewards, go for it. And when you experience the magic of the first-class 'lie flat' seats on a 12-plus-hour flight like I did, you'll know you won the game.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. ?

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

0924-P98C