Do you receive rewards from your current credit card? Unless you are just starting out and have no credit history, or are attempting to rebuild poor credit, you should be able to qualify for a rewards credit card. We suggest evaluating your credit card options to optimize your rewards – but consider these three tips before you start your search.
1. Understand Your Qualifications and Preferences – Cards are available at different rewards levels. With a higher credit score and a positive payment history, you will qualify for greater rewards. How does your credit score stand up?
As you evaluate card options, check your credit score against the targeted market for the card (for poor, fair, good, or excellent credit). The card issuer's website should make that target clear. You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.
Match your qualifications up with the available cards in that category and choose your preferred rewards. Would you prefer a travel card, a cash-back card, or a card with some other form of reward? Matt Schulz, Senior Industry Analyst at CreditCards.com, advises, "The best way to know what a really good deal is on a credit card is to know what you want to get from the credit card...there's no such thing as a one-size-fits-all credit card."
If you are trying to qualify for a card above your current range, you need another compelling point (such as a temporary and explainable dip in your score) to convince a card issuer to take a chance on you. Remember: if you request credit but don't get it, it could still hurt your credit score. You can read your credit reports from each of the major credit bureaus (Experian, Equifax, and TransUnion) using Credit Manager by MoneyTips. Review your credit reports for errors that could be lowering your score, and look for areas where you can improve your score (such as making all payments on time).
2. Identify Your Spending Needs – Each credit card will have different rates and rules regarding the accumulation of rewards, and most have minimum redemption requirements. Look over the terms of each card thoroughly to see how your typical spending habits match up with the rewards program. If you don't spend much on your credit card, you may be better off with a targeted rewards program that fits your needs and is easier to redeem.
In Schulz's words, "You want to ask yourself, 'What do I want to get from the card, and how do I use it?' and that's a good way to help you understand what cards are a good deal."
Remember that regularly carrying a balance will negate almost any rewards or bonus programs. If you carry a balance, your focus should be on finding the card with the lowest annual percentage rate (APR) and taking advantage of 0% APR introductory offers and/or balance transfer cards. Rewards are a secondary concern.
3. Think in Terms of Payback – Is a 2% cash-back card better than a 1.5% cash-back card? Not necessarily. The answer depends on the bonuses packages and introductory offers. If you spend enough to take advantage of certain bonus packages, it may take tens of thousands of dollars' worth of spending on a card with higher cash back and no bonus to reach the same breakeven point.
For example, consider a 2% cash-back card with no bonus and a 1.5% cash-back card with a $200 bonus on a minimum $500 of spending within the first three months of activation. You will need to spend $40,000 on the 2% card to equal the $200 bonus you got upfront with the 1.5% card – as long as you spend $500 in that first month. How long will it take you to spend $40,000 on credit? More importantly, how long will it take to pay that back?
Always think in terms of payback and whether that payback period matches your spending habits. If you plan to re-evaluate your card every few years or so, the payback period becomes even more important.
Your optimum rewards program is out there somewhere. Don't expect it to come hunting for you. Take the time to explore your options, and soon you will be reaping the rewards of your choice – whatever that choice may be.
If you want more credit, check out MoneyTips' list of credit card offers.