In order to fully take advantage of credit card rewards, start by building a good or excellent credit score (needed to qualify for the best rewards credit cards), then compare offers to find the best credit card for your spending habits, use it responsibly and pay the bill in full every month. You can’t take maximum advantage of credit card rewards if expensive interest charges are subtracting from your earnings.
Rewards credit cards are available to people of all credit levels, though. And there are some steps anyone can take to maximize their rewards-earning prospects, regardless of their current credit score.
How to Take Advantage of Credit Card Rewards:
1. Pick the right rewards credit card(s).
Finding the best rewards credit card for your spending habits takes a little legwork, but it’s worth the trouble. You’ll want to find a credit card that gives you the most rewards for your biggest spending categories - such as groceries or gas - and preferably, a credit card that offers a nice signup bonus for spending a certain amount within the first few months. One with no annual fee would be ideal, too.
Whichever card you pick, make sure you’re familiar with its rewards program: the value of its rewards units (points, miles or cash back), how to redeem them, whether your rewards expire, any minimum redemption amounts, etc. Cash back cards are generally a good choice because their rewards can’t be devalued.
2. Use more than one credit card.
If you can’t find one rewards credit card that will provide top-notch returns on all your purchases, try WalletHub’s Island Approach. By using different cards for different types of transactions, you can cobble together a better collection of rewards than you’re likely to find in a single package.
For example, you could use a high-earning gas rewards credit card to save on your daily commute and a card with good supermarket rewards to save on groceries. Using a separate low interest credit card for balances that you won’t be able to pay in full by the due date will also keep your everyday purchases from accruing interest.
It takes a little bit of organization, but it’s well worth the effort if you can manage the accounts responsibly. For starters, that means you’ll want to apply for one card at a time – don’t apply for the second one until your credit score has bounced back from the first hard inquiry (3-12 months).
3. Find the most valuable redemption method – for both you and your card.
All credit card rewards are not created equal. For starters, there are a trio of different rewards currencies to choose from: points, miles, and cash back. It’s an important decision, too. The value of rewards points and miles varies by card as well as the redemption method used. For example, redeeming rewards points or miles for cash can often mean sacrificing value in the process. True cash back rewards, on the other hand, are simply worth a percentage of the dollars and cents spent on each purchase. That’s why cash rewards can’t be devalued, unlike points and miles.
Given how many good rewards cards are out there, it’s important to comparison shop for an offer that suits your spending and payment plans. Most of the time, you really can’t go wrong with a flat-rate cash back credit card with no annual fee. But if you’re a frequent traveler, for instance, you may want to consider a credit card with travel points or miles because you’ll have regular opportunities to earn the card’s maximum rewards rate as well as to redeem what you earn. However, some travel cards require you to redeem through the issuer’s online rewards portal to get top dollar. Others give you the flexibility to use rewards to pay for any recent travel purchase made with the card, including bookings made on third-party travel-comparison websites.
In other words, the details really do matter when it comes to earning, redeeming and ultimately maximizing credit card rewards.
4. Pay your balance in full every month.
Credit card interest rates are a lot higher than credit card rewards rates. So, in order to take advantage of credit card rewards and avoid seeing your earnings swallowed up by finance charges, make sure to pay your full statement balance by the due date every month.
Many credit cards’ terms also reserve the right to stop giving you rewards when you’re late on your bill, and some will forfeit your unredeemed earnings completely. Set up your auto-pay function to ensure you never miss a due date.
5. Redeem your rewards regularly.
Once you have your rewards, be vigilant about redeeming them often. Some cards allow you to set up auto-redemption when you reach a certain rewards threshold, and that’s a good idea. If you’ve reviewed the rules of your rewards program, you more than likely read the part where the entire program - earn rates, minimums, and redemption values, in particular - can change at any moment. Your card issuer could even decide to cancel the entire program, if they so choose.
The best thing you can do to avoid losing your rewards or having them devalued is to use them regularly. Besides, the whole point of rewards is to actually enjoy them and save yourself some money. Regular redemption helps you do just that.
6. Take advantage of any bonus rewards your card may offer.
Many rewards credit cards give extra points for spending in certain categories or for using the card issuer’s shopping portal for certain purchases. These can be great opportunities to rack up extra rewards if you were going to make those purchases anyway.
For example, if your card gives 4% back for restaurant purchases, use it at restaurants. Or if your credit card gives 10% more rewards for shopping at a certain retailer through the card issuer’s shopping portal, it’ll be well worth those few extra clicks.
7. Consider applying for a new credit card with a big signup bonus every now and then.
Signup bonuses can be a good way to boost your rewards if you can meet the requirements. Usually, signup bonuses require you to spend a certain amount of money within a set time period (3 months, on average) after opening the account. If you were going to spend that much on the card anyway, why not get paid a few hundred extra dollars for it?
That said, aiming for new signup bonuses is only a good idea if you have control of your spending habits, and you know you won’t blow your budget trying to qualify for the extra rewards. And it’s important to note that you shouldn’t do this too often – opening too many new credit cards in a short period of time can be bad for your credit score.
While this is practical advice to maximize your current rewards-earning capabilities, it’s worth mentioning that the best rewards credit cards require good or excellent credit for approval. So to get the best rewards bang for your buck, you should start by checking your credit score for free on WalletHub. You’ll also get personalized recommendations to improve your credit.
WalletHub Answers is a free service that helps consumers access financial information. Information on WalletHub Answers is provided “as is” and should not be considered financial, legal or investment advice. WalletHub is not a financial advisor, law firm, “lawyer referral service,” or a substitute for a financial advisor, attorney, or law firm. You may want to hire a professional before making any decision. WalletHub does not endorse any particular contributors and cannot guarantee the quality or reliability of any information posted. The helpfulness of a financial advisor's answer is not indicative of future advisor performance.