Common mistakes to avoid when using rewards credit cards

Monday, May 13th, 2024
Updated: May 13th, 2024
The content is accurate at the time of publication and is subject to change.

Rewards credit cards are a special category of credit cards that offer users various incentives, benefits, or discounts for using the card. Cashback, points, and miles are the three most common types of rewards.

When used correctly, rewards credit cards can be a powerful tool to help you maximize your earnings, but only if you can leverage benefits like category, redemption options and spending bonuses, along with fees, interest and more. Below are a few costly mistakes that you should avoid when making the most out of your credit card.

Choosing the wrong credit card

The right rewards credit card offers great perks and bonuses for spending money you were already going to spend anyway. Therefore, it’s important that your card aligns with your spending habits and offers more rewards based on your major spending categories.

For example, if you spend a lot on groceries and want a card with no annual fee. In that case, the First Tech Choice Rewards World Mastercard® offers 2% points on groceries, gas, electronics, medical, household goods and telecommunications, and 1 point on other purchases.

If you don’t want to bother with rotating bonus categories and thinking about which credit card to use to get the maximum rewards, a flat-rate credit card like the Upgrade Cash Rewards Visa® credit card could be a good fit.

Frequent travelers will benefit most from travel rewards credit cards that offer travel-focused perks and protections.

Missing bonus categories activation

Some cash back credit cards offer a chance to earn extra rewards in different bonus categories that rotate every quarter. The best rotating categories credit cards, such as Chase and Discover credit cards, offer up to 5% cash back on your purchases, along with other features and perks. However, you have to activate the bonus categories every quarter to earn the elevated rewards. And if you forget to activate the bonus categories, you’ll only earn 1% back on those purchases.

It’s worth taking advantage of a quarterly bonus to rack up extra cash back until you hit the spending cap. After you hit the cap, you can still earn cash back, but at a lower rate. You’ll also need to activate the bonus every quarter, but if you forget to do so, you could be missing out.

Carrying a balance

Rewards credit cards benefit you the most if you use them wisely and paying off the balance in full every month. If you carry a balance, the credit card company will charge you interest on the unpaid balance. Credit card rewards will never outweigh the cost of interest charges though.

For that reason, if you don’t want to end up spending more on fees or interest charges than benefiting from the rewards, it’s best to pay off the balance in full by the due date.

Choosing low-value redemption options

Earning rewards is one thing but redeeming them is quite another. Many rewards cards give you a variety of redemption options. You may be able to redeem for a statement credit, direct deposit, or a paper check. Some cards also allow you to use your rewards to buy gift cards, shop online or book travel. Some cards let you transfer points or miles to partner loyalty programs, which can give you more flexibility in how you use your rewards.

However, the value of your rewards with each redemption option isn’t always the same. So, when you’re thinking about how to redeem your rewards, your goal is to get the most value per point or mile spent.

Each credit card issuer has its redemption platform, whether it’s an online portal, mobile app, or a customer service hotline. Log in, explore and compare your redemption options to make the most of your rewards.

Sticking to one credit card

You don’t have to limit yourself to just one rewards credit card, you could still get more value by using multiple credit cards. You might choose a travel card, an airline card, and a general purpose card if that’s the best way for you to maximize your rewards.

Look for the card combination that rewards your most common everyday spending categories and provides added value based on your spending preferences. This way, you’ll be able to maximize your earnings across a wider range of purchases.

Chasing sign-up bonuses

Credit card sign-up bonuses are a popular incentive offered by the card issuer for opening a new card and meeting minimum spending requirements, usually within the first three months of account opening.

These bonuses are a nice plus. But if you plan to use the card regularly, focus on the redemption options and rate you get for your spending.

Avoiding credit cards with annual fees

Generally, cards that do charge annual fees offer even better benefits or perks as well as extras that can easily overweight the cost of such fees. Frankly, paying a card’s annual fee is worth it if you are receiving more than you are paying. Moreover, many of the top rewards credit cards waive the annual fee for the first year, which gives you time to see if the added cost is worth the benefits you’re getting. If you don’t want to pay an annual fee, there are plenty of cards that don’t charge one.

So to conclude, no matter what type of rewards your card earns – miles, cashback, or points – it’s important to ensure that you have the right card in your wallet and that you’re taking advantage of all the benefits it offers.

All rates and fees, and other terms and conditions of the products mentioned in this article/post are actual as of the last update date but are subject to change. See the current products' Terms & Conditions on the issuing banks' websites.

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