Home > Credit Cards > Maxing Out Your Credit Card Rewards? Don’t Get Burned!

Comments 0 Comments

Are you using your credit card to pay for just about everything you can in hopes of maxing out the rewards you earn? While that may be good for your pocketbook, it could be bad for your credit, as our reader JL Lagistee is learning. He wrote:

My problem is that I have a rewards card that pays rewards on all purchases, so I charge everything on this card. Consequently my balance on my card is always high. I also pay off all charges in the same month they are charged. So I am never delinquent or miss payments. The credit rating companies downgrade my credit score a couple of points each quarter and never push it up because of this issue.

JL monitors his credit scores through a monitoring service provided by his bank, and he is frustrated with the fact that his scores remain stubbornly average, despite his perfect payment history on this current account. According to the credit monitoring service, the balance on his credit card appears to be the main factor contributing to his mediocre scores.

What can he do?

I spoke with JL by phone and learned that he only has one credit card and it has a $2500 limit. He often charges $2400 a month on that card in order to earn as many rewards as possible, which means his balance is usually very close to the limit.

JL’s “utilization ratio,” is very high, explains Barry Paperno, Credit.com’s Community Director and a credit scoring expert with many years of experience in the credit industry.

To calculate the utilization ratio, divide the balance on the card by the credit limit. A $2400 balance on a credit card with a $2500 limit results in a utilization ratio of 96%. “Anytime you go above 25% that can be a problem,” says Paperno.

He also explains that the utilization ratio is calculated for each credit card on a consumer’s credit report, as well as for the total credit card limits and balances reported. Since JL only has one credit card, both his individual and aggregate utilization ratios are calculated for this one card — and that means both are very high.

Is there anything JL can do to help boost his credit scores while still racking up lots of rewards?

1. Ask his card issuer to raise his credit limit.

JL is worried this will cause his credit scores if he asks his issuer to consider him for a credit limit increase. While it’s impossible to predict exactly what will happen to his scores with any of the actions we are suggesting here, a single credit check shouldn’t wreak havoc with one’s credit scores.

When a creditor reviews the credit of a current customer, the “inquiry” that is posted to the credit report is often a “soft inquiry,” since it is coming from an existing relationship, rather than from a new lender. Soft inquiries don’t affect credit scores. But even if the credit check creates a “hard inquiry” — which will impact his scores — over time the improvement in his utilization ratio should be greater than the temporary loss of a few points due to a credit inquiry.

2. Spread his purchases around multiple cards.

Since JL only has one credit card, he would have to get a new card to implement this strategy. And a new card would cause his credit scores to drop a bit in the short term. But overall, two credit cards is not “too many,” and his credit scores may benefit over the long run from another positive account on his credit reports.

If JL has trouble qualifying for a high limit bankcard, he may want to consider applying for a department store card, suggests Paperno. They are easier to get and “still be included in his aggregate utilization — though not with quite the positive impact to his utilization as a bankcard.” The limits are often fairly low on these cards, though, so JL should be careful not to charge a lot on one of these cards.

3. Try to time his payments and purchases.

The goal would be for his payments to arrive right before the issuer reports his account to the credit reporting agencies so his balances will be smaller. For this to work, he would also have to hold off on making new purchases until the balance is reported to keep that figure down. This is going to be extremely tough to figure out, though, because most of the time the issuer can’t even tell you what date your account is reported to the credit reporting agencies. (Some lenders report balances as of the statement date, regardless of when they actually report their accounts to the credit reporting agencies.) So this approach is probably more trouble than it’s worth.

In the end, it sounds like the best strategy is for JL to ask his card issuer for a higher credit limit, and to try to keep his balance below 25% of his available credit until he figures out whether that helps boost his credit score. Staying under 10% utilization is even better — but you can still have a good score with 25% utilization, says Paperno. The added benefit? If he can get his credit scores up, he may get some attractive new rewards card offers in the mail and he can then get a second card, improving that ratio even more.

Image: William Warby, via Flickr

Citi Rewards+℠ Card

Apply Now
on Citi's secure website
Card Details
Intro Apr:
0% for 15 months on Purchases

Ongoing Apr:
13.49% - 23.49% (Variable)

Balance Transfer:
0% for 15 months on Balance Transfers

Annual Fee:

Credit Needed:
Snapshot of Card Features
  • The Citi Rewards+℠ Card - the only credit card that automatically rounds up to the nearest 10 points on every purchase - with no cap.
  • Earn 15,000 bonus points after you spend $1,000 in purchases with your card within 3 months of account opening; redeemable for $150 in gift cards at thankyou.com
  • 0% Intro APR on balance transfers and purchases for 15 months. After that, the variable APR will be 13.49% - 23.49%, based on your creditworthiness. Balance transfer fee — either $5 or 3% of the amount of each transfer, whichever is greater.
  • Earn 2X ThankYou® Points at Supermarkets and Gas Stations for the first $6,000 per year and then 1X Points thereafter. Plus, earn 1X Points on All Other Purchases.
  • The standard variable APR for Citi Flex Plan is 13.49% - 23.49%, based on your creditworthiness. Citi Flex Plan offers are made available at Citi's discretion.

Card Details +

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