What drives customers to credit cards? Nasdaq.com reports that, in one survey, over 50% of respondents suggested that the primary reason they acquired their card is for the rewards points. And most said that they used their credit card points to receive cash back.
But if we’re all signing up for credit cards to maximize our points, are we all following up on that? Or are we improvising along the way?
Although the concept of credit card points as “free money” makes it easy to overlook your own credit card strategies, customers can leave money on the table by failing to take advantage of every benefit offered by their credit cards. Here are a few ways credit card customers are using their points wrong—and what they can do to fix it.
1. Ignoring Your Credit Card’s Own Policies
Do you know how many points you get for specific purchases on your card—or do you use it absentmindedly, letting points accrue automatically? Here are some common credit card points policies you should be aware of:
- Multipliers. It’s possible your card policy includes specific offerings such as earning twice the points on groceries or gasoline. If you’ve defaulted to a debit card for groceries, rethink your policy. You may be leaving more points on the table than you imagined.
- Miles vs. cash. In many cases, a credit card will reward you with more miles than the cash equivalent of those same miles. This is possible through individual deals between credit cards and airlines—and you’re the one who stands to benefit. Before you redeem your points for cash, consider whether it’s better not to have to pay for that next airline ticket.
- Brand specifics. Credit cards tend to cross-promote with companies for their rewards programs. Outside of your cash-back options, credit card companies will generally offer miles for specific airlines, bank programs (points or miles) or convertible points. Don’t assume that “a mile is a mile” if you don’t know which applies to your account.
2. Minimizing the Value of Your Points by Opting for Cash
Unless cash-back rewards are your chief priority, you can often stretch your dollar even further by optimizing your credit card miles rewards. This isn’t to say that opting for travel points is always the right choice. But if it’s your priority, you should think twice before using your credit card points to justify Christmas shopping sprees or random online purchases.
In a 2015 study of credit card rewards, it was found that hotel-affiliated credit cards tend to offer the biggest “bang for the buck.” If your priority is maximizing your travel dollar, don’t use up your rewards points without doing some planning first.
3. Paying with Cash
Paying with cash or debit can be a great thing when trying to manage a budget. But if debt management isn’t a problem for you, there’s no reason you can’t put big purchases on a card. This won’t only provide you with more rewards points or miles, but will offer the additional protections that come with your credit card policy. In fact, a survey from Vantiv found that improved security protection is becoming a preferred credit card feature among millennials.
4. Signing Up for a Credit Card Just for the Bonuses
With most credit card users reporting that rewards programs are high on their list of priorities for credit cards, it can be easy to get caught up in the mania of choosing those credit card programs that offer the most value upon signing up.
Is this the best strategy? It depends on your goals. Some expert “credit card churners” are adept at maintaining a high credit score while utilizing a variety of registration bonuses, but that’s not for everyone. Make sure that when you sign up for a credit card, you include a number of variables in your research: what kinds of credit card points are on offer, what your interest rates will be and whether or not there are annual fees to worry about.
Using Credit Card Points the Right Way
With the above in mind, how should most consumers utilize their points? It starts with planning. Understanding your individual goals as they relate to your credit card use will give you a leg up. Study your own credit cards and understand where you’ll find the greatest impact in your purchases (for example, do you get more points for grocery purchases?) and redemption. Even “free money” should not be treated lightly.
Maxime Rieman is Product Manager at ValuePenguin. Educating and assisting shoppers about financial products has been Rieman's focus, which led her to joining ValuePenguin, a consumer research and advice company based in New York. Previously, she was product marketing director at CoverWallet and launched the personal insurance team at NerdWallet.
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