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Loyalty programs come with enough rules to put Parker Brothers and Hasbro to shame. However, learning to abide by the unwritten rules is equally important. Today, TPG Senior Points & Miles Correspondent Nick Ewen shares the gospel of travel rewards credit cards to guide you along the righteous path to award travel.
As the saying goes, “Everyone makes mistakes,” and the points and miles game is no exception. Whether you’re brand new to the hobby or a seasoned pro, the potential for errors is always there. In this post I want to share my 10 commandments for travel rewards credit cards to help you avoid some of the most common mistakes made by cardholders.
1. Thou shalt pay thy balance in full
To me, keeping a balance is the cardinal sin when it comes to credit cards. Unfortunately, I know several people that treat credit limits like free money, spending at will without any definitive plan to pay the balance down. Aside from being a sure-fire way to wreck your credit score (and hurt your ability to open cards or obtain a mortgage or other loan in the future), this behavior will also cost you money. Most travel rewards credit cards carry high interest rates, so running up a balance and not paying it off every month will negate the value of any points or miles you earn.
How to comply: Whether you have one credit card or twenty, always spend within your means. Personally, I use an Excel spreadsheet to project out my bank account for at least three months so I know that my outflows (payments, checks, etc.) never exceed my inflows (income).
2. Thou shalt not miss a payment
Though not nearly as bad as running a balance, missing payments can be very costly. For starters, most credit card issuers charge a late fee of $25-$35 if you submit a payment even a single day late. Payments made beyond your due date can also greatly impact your credit score. As TPG wrote about in 2013, your payment history makes up over one-third of your overall credit score, and while one missed payment isn’t fatal, several is a cause for concern.
How to comply: Take advantage of auto-pay features available on just about every credit card. When I open a new card, I set a calendar notification for 4-6 weeks later so I remember to add my bank account and/or set-up automatic payments. Just keep in mind that there may be a 1-2 month delay in activation, so you may have to manually make the first one or two payments before auto-pay kicks in.
3. Thou shalt not cancel a card before thou hath opened a new one
Many people are surprised by how many credit cards I have, and I commonly get asked “Don’t you need to cancel one card before opening another?” Absolutely not! In fact, canceling a card may actually hurt your credit score. There are two main reasons for this:
- A large part of your credit score (30%) consists of your credit utilization ratio: how much of your available credit you actually use. If you currently have balances of $5,000, and $50,000 of available credit, your credit utilization rate is just 10%. If you then cancel a card with a $30,000 limit, your rate suddenly jumps to 25% (because your available credit is now just $20,000). That’s not quite in the danger zone, but still high enough to give a card issuer some doubts.
- Another part of your credit score (10%) consists of your length of credit history, and part of this equation is the average age of your accounts. If you’ve had a card with no annual fee for 5+ years, do not cancel it! Make a few purchases on it each year (so the bank doesn’t close it) and let it continue to add to your history.
How to comply: Very simply, do not cancel a card unless doing so won’t hurt your credit utilization rate, and the card has an annual fee that you want to avoid.
4. Thou shalt not cancel a card and lose thy points and miles
Another hazard of canceling a credit card is forfeiting the points and miles you’ve earned. On many credit cards connected to a specific airline or hotel chain, this isn’t an issue, as what you earn automatically transfers to that program’s account (see Jason Steele’s post from yesterday for more details). However, other points and miles simply sit with the card issuer until you redeem them, including American Express Membership Rewards points, Chase Ultimate Rewards points, and Barclaycard Arrival Miles. Be sure to redeem before canceling cards with these types of rewards, as they will disappear once your account is closed.
How to comply: Use the points before canceling the card, either by transferring them to a partner or redeeming them directly for travel, statement credits, etc.
5. Thou shalt not allow thy rewards to expire
While some loyalty programs (like JetBlue and Delta) don’t put an expiration date on rewards, many others will wipe out your account after a certain period of inactivity. That period is generally at least 18 months, though it can be shorter; Spirit Airlines only gives you three months! My wife opened a new Bank of America WorldPoints credit card before we got married, and put all our wedding-related purchases on it. After the wedding, she left it alone. Little did she know that WorldPoints expire 5 years after they’re earned, so she wound up losing several thousand of them.
How to comply: Check out TPG’s posts on airline expiration policies and hotel expiration policies, though keep in mind that some have changed since those posts were written. To be safe, I always recommend making at least one purchase annually on every card in your wallet.
6. Thou shalt not miss out on a sign-up bonus
Using a rewards card for day-to-day spending is a great way to boost your earnings throughout the year, but one of the biggest drivers of credit card applications is the sign-up bonus. By not spending enough in the specified time frame (usually 3 months), you can miss out on a huge influx of points. Some things to keep in mind when it comes to these requirements:
- The clock starts ticking as soon as your application is approved: The 90 days or 3 months doesn’t start when you receive the card, but rather starts immediately upon account approval. If you’re unsure of that date, call customer service for your card and ask.
- Annual fees and cash advances do not count: If you got in on last month’s targeted 100,000-point bonus for the The Platinum Card from American Express through Card Match, the $450 annual fee will not help you hit the minimum spend threshold.
How to comply: Knowing the specific time frame and what counts is half the battle, but you also need to track spending. Fortunately, the premium version of the TPG To Go app includes bonus tracking features that will alert you if you’re not on track to hit the minimum spending threshold on a new credit card. I use this for every card I add to my wallet, and it has already saved me once!
7. Thou shalt take advantage of category bonuses
Many credit cards give you bonuses for purchases at certain types of merchants, including restaurants, supermarkets, and gas stations. I shudder when my friend pays for his/her dinner with a 1% cash back card instead of the Chase Sapphire Preferred, which earns double Ultimate Rewards points on dining, or triple points during the first Friday of each month). If you have a card with bonus categories, take advantage of them.
How to comply: Reading the card agreement (or visiting the card’s website) is a great first step. You can also check out TPG’s post on Maximizing Bonus Categories from last year.
8. Thou shalt not ignore cards with annual fees
If you’re new to this hobby, you may believe (as I once did) that cards with an annual fee are terrible. However, many of these cards offer lucrative sign-up bonuses, ongoing benefits, and anniversary bonuses that more than cover the annual fee. In addition, many of them waive the annual fee for the first year, giving you a free one-year trial before you have to decide whether you should keep the card for the long term.
How to comply: By visiting The Points Guy, you’ve already taken the first step! TPG and contributors regularly write posts about how to maximize your earnings and rewards on these cards, including TPG’s monthly ranking of the Top 10 travel credit card offers. You’ll notice that all ten of the cards on February’s list do have annual fees, and TPG provides a great synopsis of why each one is worth adding to your wallet. You can also check out TPG’s Hot Deals page for a list of these (and other) great offers.
9. Thou shalt pursue retention bonuses
Once you do take the plunge and open a card with an annual fee, there are ways to avoid it in future years. When the first year is up and the annual fee comes due, you can always call your card issuer and ask about waiving the annual fee again. Remember that the issuing bank wants you as a customer, so they don’t want you to close your account. Many TPG readers (myself included!) have received offers to keep cards open, including:
- Another year with the annual fee waived (no strings attached);
- Make X purchases in Y months and enjoy another year with no annual fee;
- Make X purchases in Y months and receive Z bonus points/miles.
I do recommend doing this only for cards that you would actually cancel without getting an offer. If you ask for it, don’t get it, and keep the card anyway, the issuer might flag you (or your account) as the boy/girl who cried wolf, because they know you won’t follow through on your threat to cancel.
How to comply: Call the number on the back of your card when the annual fee comes up, and tell them that you’d like to cancel the card due to the annual fee. Then, see what happens!
10. Thou shalt not pay foreign transaction fees
Many credit cards charge you a fee (generally 2.7 – 3%) for every purchase you make in a foreign currency or country. This includes purchases made abroad that the merchant converts to dollars for you (which you should never accept, by the way; check out my post on Dynamic Currency Conversion for more details). Many credit cards today waive these fees. With high amounts of international spending (generally $3,000+ per year), your savings will cover most annual fees, but keep in mind that some cards waive foreign transaction fees and have no annual fee, including the Barclaycard Arrival World MasterCard and Capital One VentureOne Rewards card.
How to comply: This one is also simple; get a card that waives these fees! TPG Contributor Richard Kerr recently gave a rundown of the top cards that fit this criteria; you can also refer back to this post for a more comprehensive list.
There are many things that you absolutely should (and should not) do in relation to your travel rewards credit cards, and hopefully this list of commandments has given you some food for thought. Traveling the world (almost) for free is possible, and not even that difficult, as long as you make the most of every card you open and use on a regular basis.
What commandments would you add to this list? With great transfer partners like United and Hyatt, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game.
With great transfer partners like United and Hyatt, 2x points on travel & dining and a 50,000 point sign up bonus, the Chase Sapphire Preferred is a great card for those looking to get into the points and miles game.