Ten commandments for travel rewards credit cards
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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 who treat credit limits like free money, spending at will without any definitive plan to pay the balance down. Aside from being a surefire 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 — although a few offer 0% APR for an introductory period — 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 20, always spend within your means and stay organized. 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. Your payment history makes up over one-third of your overall credit score, and while one missed payment isn’t fatal, several are a cause for concern.
How to comply: Take advantage of the 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 to 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 hast 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. If the card has an annual fee that you want to avoid, try to downgrade the card to a no annual fee version instead of canceling the card.
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. 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 tips on how to keep your points and miles from expiring. To be safe, I always recommend making at least one purchase annually on every card in your wallet and earning points or miles through a shopping portal for any types of points or miles for which you don’t have an associated credit card.
6. Thou shalt not miss out on a sign-up bonus
Using a rewards credit card or travel credit 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 three 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 usually starts ticking as soon as your application is approved: The 90 days or three months usually 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, transferred balances and cash advances do not count: If you got in on a targeted 100,000-point bonus for The Platinum Card® from American Express through CardMatch, the $550 annual fee (See Rates & Fees) 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. Spreadsheets, calendar reminders and money management tools can be very helpful for staying organized.
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 Card, which earns double Chase Ultimate Rewards points on dining, or the Chase Sapphire Reserve, which earns 3x points on these purchases. If you have a card with bonus categories, be sure to use that card when making purchases in these categories.
How to comply: Reading the card agreement (or visiting the card’s website) to know the earning and benefits provided by your current cards is a great first step. You can also check out TPG‘s Ultimate Guide to the Best Cards for Each Bonus Category if you want a new card for a particular spending category.
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 limited-time credit card offers. You can also check out TPG’s best credit cards 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 still ways to avoid the annual fee. If you don’t think the value you’ve received from the card justifies the annual fee, you can always call your card issuer when the annual fee comes due and ask about waiving the annual fee. Remember that the issuing bank wants you as a customer, so it doesn’t want you to close your account. Many TPG readers (myself included) have received offers to keep cards open, including:
- A waived annual fee (no strings attached);
- Make X purchases in Y months and enjoy a waived annual fee;
- Make X purchases in Y months and receive Z bonus points/miles;
- Z bonus points/miles (no string attached).
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 1 – 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). But, some credit cards waive these fees. Many of the premium travel rewards credit cards don’t have foreign transaction fees, but even some no annual fee cards like the Capital One® VentureOne® Rewards Credit Card waive foreign transaction fees.
How to comply: This one is also simple; get a card that waives these fees! Here’s a roundup of the top cards that fit this criteria.
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.
For rates and fees of the Amex Platinum Card, please click here.
Featured image by Kathleen Finlay via Getty Images.