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The biggest mistake points and miles beginners make is trying to do too much, too fast. Being approved for a credit card, redeeming your cash back or seeing those points and miles build up in your account is an intoxicating feeling. The world of points and miles is your oyster, and it’s natural to want to squeeze every ounce of rewards out of the system.
But in order to get the most from your new cards and the rewards they bring, it’s important to know how to navigate the twists and turns that exist for people new to the world of points and miles. There are always damaging mistakes you can make if you get in over your head. Here’s how to make sure you’re not biting off more than you can chew.
1. Don’t Hurt Your Credit Score
If you ever want to graduate to bigger and better rewards cards, you’ll need a solid credit score. Don’t slow your progress by (unintentionally) hurting your score in these ways…
Not Paying Your Bill on Time
This is commandment number one for credit cards. If you’re not paying your bill on time, you’ll hurt your score and potentially won’t earn cash back or points for your purchases. Even if you do still earn rewards, the benefit is almost always nullified by late fees and having to pay interest. Pay your bill on time!
Using Too Much Credit
This one is less well-known, but a large chunk of your score depends on how much of your credit line you’re using from month to month, also known as your credit utilization ratio. If you have a $1,000 line of credit on a credit card and your statement closes with you having spent $900 on your card, that card has a 90% credit utilization ratio. If your utilization ratio gets too high across all your cards, your score will drop.
If you find yourself inching close to your credit limit on a regular basis, try paying off your balances a few days before your billing period ends, so that your bill shows a utilization rate of less than 30%. This is considered optimal when it comes to your credit score, because it shows that you’re responsibly using your credit and not maxing out your line. Credit bureaus generally only see your outstanding balance at the time your statement closes, so as long as your bill is small enough at that point, you’re in the clear.
Also, do not close unused cards, especially those that have no annual fee. Doing so can actually hurt your credit score, since the loss of the unused credit line will drive up your utilization ratio just from spending the same amount of money you usually do.
Applying for Too Many New Cards
Once you start to see your rewards rolling in, it’s easy to want more. But applying for too many new cards within a two-year period can hurt your credit score, even if you aren’t accepted for the new cards. That’s because each time you apply for a new card, a hard inquiry (sometimes known as a “hard pull”) gets added to your credit report. While the effect of these hard inquiries on your score only last about 3-6 months and drop off entirely after two years, enough of them at once will definitely hurt your current score.
Recognize that the process of building your credit score takes time, and that while it would be great to have a Chase Sapphire Reserve as the second credit card you’ve ever had, you’re not likely to be approved with a thin credit history. So if you have to apply for a new card, do your research and make sure it’s one you’re likely to be approved for. Remember, you don’t need five credit cards right off the bat!
2. Maximize Your Rewards
Using your new card or cards responsibly is only half the battle. Often times people forget that not all cards are created equal, and that even having just two cards will involve knowing exactly when to use which card. Make sure you’re not making these mistakes when it comes to earning points and miles…
Missing Out on Signup Bonuses
Cards like the Bank of America Cash Rewards credit card or the Chase Sapphire Preferred Card have sign-up bonuses that are very attainable… if you time your spending correctly. If a card is offering 60,000 bonus points after spending $4,000 in the first three months of account opening, like the Sapphire Preferred, make sure you’re in a position that you can hit that goal. You wouldn’t want to miss out on a huge sign-up bonus just because you bought a new phone the week before you got your new card instead of doing it with your new card. Know your spending habits and time your card applications accordingly.
Treating All Your Cards The Same
Not every card is created equal. Some cards have complicated rewards structures that earn bonus points on certain purchases but not others. For instance, if you’ve got the Discover it® Cash Back, which earns 5% cash back on up to $1,500 in purchases made in accordance with Discover’s 2019 Cashback Calendar after enrollment but only 1% cash back on all other purchases, make sure you’re using it on the right categories in that particular quarter, and switch to a different card that might give 2% cash back on other purchases.
Reading The Points Guy on a regular basis helps you keep track of this type of info, but it’s still good to have a working knowledge of which cards are offering which benefits. And of course, don’t use your debit card unless you absolutely have to!
3. Control Your Appetite
Rewards are always exciting. Seeing your milage balance increase after a trip or redeeming credit card points at the end of the month reminds us why we spend hours and days researching cards and reading stories about points and miles. But Rome wasn’t built in a day, and your rewards account won’t be either. Be careful not to find yourself in either of these two traps…
Never fall into the mindset of thinking that your rewards will cover for spending extra money you don’t have. This can get you into a position where you’re spending beyond your means, and can lead to being unable to pay off your bill. Always use your card or cards responsibly and only buy exactly what you would have bought with cash or a debit card instead — nothing more. As much as they can bring you up, points and miles can also be a downfall. Don’t let it happen to you!
Chasing Airline Status
Complimentary upgrades to first class sound enticing, but odds are if you’re a beginner who’s thinking about chasing airline status, you’re not going to be utilizing the benefits nearly enough to make it worth it. Some people can incur hundreds or even thousands of dollars in unnecessary expenses while chasing airline status that they’ll barely benefit from. Especially if you’re just starting out, let the rewards come to you as you naturally go about spending and traveling.
Effectively navigating the world of credit cards can have an undeniably positive impact on your life. From giving you extra money in the form of cash back to helping you book (almost) free trips in the form of points and miles, the benefits can be endless.
Remember that as a beginner, no one expects you to have massive rewards balances right away — and you especially shouldn’t expect that of yourself. Building an arsenal of great cards and lots of rewards takes time, but if you follow the rules and avoid taking on too much at the start, you’ll graduate from being a beginner in no time.
Featured image by Ridofranz / Getty Images.
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