Home > Credit Cards > 6 Mistakes You Can Make With a Rewards Credit Card

Comments 0 Comments

Rewards credit cards can be amazing financial tools, as few products exist that actually pay you to use them. It’s easy to get caught up in trying to earn valuable points, miles and cash back for the kind of spending you would normally make. But behind the thrill of earning rewards are numerous traps that can cause the whole system to unravel. Here are six mistakes you can make with your rewards card and tips for avoiding them.

1. Carrying a Balance

When you pay your entire statement balance in full, then you can avoid racking up interest charges. If you always manage your credit card this way, then the rewards you earn have little cost and your card’s interest rate doesn’t matter. But if you carry a balance, even occasionally, you will likely pay more in interest charges than the value of rewards you receive. If you need to carry a balance, then you should be using a credit card with the lowest possible interest rate, which probably won’t offer rewards. (Not sure what cards are out there? You can check out our roundup of low-interest cards here.)

2. Overspending to Earn Rewards

Because credit cards offer you rewards for your spending, it’s very easy for some people to spend more just to earn rewards. This is a mistake, since any rewards that you earn with even the most generous rewards card will be just a fraction of the cost of the unnecessary purchases you made. Though this fact is obvious, reward card users may still rationalize their unnecessary purchases or be subconsciously influenced by the opportunity to earn points, miles or cash back.

3. Not Understanding Bonus Categories

Many rewards credit cards offer bonuses for specific kinds of purchases. For example, a store credit card will likely offer additional rewards for purchases from the co-branded retailer. But with other cards, the bonuses may not be so simple. For instance, credit cards like Chase Freedom or Discover it may require you to activate your bonus categories each quarter, and some may fail to do so. Other cards like the Amex Everyday Preferred offer bonuses for purchases from supermarkets and gas stations, but only those in the U.S. If you don’t understand these limitations, you may mistakenly choose the wrong card for your needs.

4. Overspending on Annual Fees

When you apply for a rewards credit card, you may feel like the annual fee is a good value. But once you’ve used the card for a year, it’s a good idea to take a critical look at the value that you’ve actually received from the card. For example, you may have a premium travel rewards card that offers a membership to airport business lounges but carries a $450 annual fee. This may have seemed like a worthwhile expense a year ago, but if you’ve only used the lounge a handful of times during the year, then you probably made a mistake.

5. Using an Old Card

You probably haven’t used a cassette player or dial-up modem in a long time. Similarly, some people continue to use the same rewards card they’ve had for many years. The market for rewards credit cards is extremely competitive, and new cards are regularly being introduced that offer increased rewards and more valuable benefits. If you haven’t reexamined your reward credit cards in a few years, then it’s likely that you aren’t earning a competitive rate of return. If you’re considering adding a new rewards card to your wallet, be sure you know where your credit stands before you apply. (You can view two of your free credit scores, updated every 14 days, on Credit.com.)

6. Not Using Your Credit Cards Strategically

It’s easy to just use the same rewards card for all of your purchases, but that could cost you in valuable rewards. Ideally, you may have several credit cards, each for different types of purchases where they earn the most rewards. For instance, you may have one credit card that earns the most rewards at supermarkets, another for gas stations and a third that offers the highest level of rewards for your general spending.

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Image: Eva Katalin Kondoros

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team