What Credit Card Issuers Won't Tell You About Using Reward Cards

A credit card that offers rewards is as good as it gets. You spend and the credit card issuer gives you trips, cash, or merchandise for charging with your credit card. If you think the credit card issuer is being generous, you’re fooled. There’s a reason credit card issuers give rewards – because they want you to spend more. If you have a rewards credit card, there are some rules you have to follow when you’re using it.

Pay In Full Every Month

This rule applies to every credit card you apply for, but often people relax the rule and make the minimum payment or some other payment less than the full balance. Don’t make exceptions with a rewards card. First, because rewards cards often have high interest rates and that means your finance charge will also be high. Second, because if you’re paying interest on your rewards cards, then your rewards aren’t really free. You could almost skip the rewards, save the money that you’d spend on interest, and probably come out ahead.

No Cash Advances on Rewards Cards

Cash advances are a bad idea in general, but even worse on rewards cards. You won’t earn rewards on cash you borrow from your rewards credit card. But you’ll have a balance that keeps you from making charges that would be eligible for rewards. In addition, cash advances start accruing interest immediately (there’s no grace period) and you’ll pay more finance charges on the cash advances than you would if you’d made a purchase in the same amount.

Don’t Charge More Just to Get More Rewards

The nature of credit card rewards encourages credit card use. You’ll be tempted to charge more on your rewards credit card so you can accumulate more rewards. However, the downside of that is that you could be charging more than you can afford to repay in a particular month. Which means you wouldn’t be able to pay your balance in full and you’d end up paying interest in your purchases. The best way to use a rewards credit card is to charge what you would have been charging anyway.

Don’t Neglect Your Other Credit Cards

Another reason credit card issuers give rewards is so you’ll use their credit card over the other credit cards in your wallet. Unfortunately, if your other credit card issuers start to feel neglected, they may cancel your credit card account. Even though you’re not using the card anymore, it still matters that your account is open because it’s helping your credit score. Having your accounts cancelled can have a negative impact on your credit score, especially if you still have a balance on the credit card.

Expect to Pay More for Better Rewards

Though you can typically lower the cost of a rewards credit card by avoiding finance charges, you probably won’t avoid the annual fee that typically accompanies reward credit cards. The best reward credit cards charge higher annual fees, while simpler ones charge lower annual fees.

Follow the Rules for Your Own Good

It’s important that you be smart when you’re using a rewards credit card. Avoid paying unnecessary fees and always pay off your balance to eliminate interest payments and the risk of debt.