How to maximize your credit card rewards
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- Rewards credit cards come in a few shapes and sizes, from the types of rewards they offer (points, miles or cash back) to the way those rewards are structured (flat rate versus rotating bonus categories)
- To best maximize your rewards card, familiarize yourself with the card’s structure, aim to meet the first-year welcome bonus and explore the value of card’s redemption options and benefits
- You should also take note of the card’s fine print, such as caps on category spending and rewards balances needed for certain redemptions
When used wisely, credit cards are a great way to get the most out of everyday spending. Rewards credit cards, in particular, allow you to earn points, miles or cash back when you use your card to make purchases — all of which can add up over time with regular spending.
These cards offer a great opportunity to earn rewards on purchases you would have made anyway, and the best credit cards offer rewards with a high earning potential, competitive rates and few fees.
You can ensure you’re maximizing your rewards by knowing the ins and outs of your rewards credit card. But if you aren’t sure where to start, here are a few strategies you should reference to make the most of your credit card rewards.
Ensure your reward structure matches your spending habits
To select and apply for the best rewards credit card for your financial situation, you need to start by identifying your spending habits. Different credit cards reward different types of spending, so you should clearly understand what you spend your money on to maximize your earnings.
For example, if you travel frequently, you might want to select a credit card that rewards cardholders with extra points, miles or cash back on travel expenses. If you spend a lot on groceries and gas, you should choose a card with higher earning potential in those categories. If your spending habits are generally mixed, and you don’t tend to spend a lot in any one category, a flat-rate cash back credit card could be a good fit for you.
Optimize reward categories
Check your card stack for the one that offers the best rewards for what you’re spending on. Suppose you’ve just opened the Blue Cash Preferred® Card from American Express, which offers 6 percent cash back on the first $6,000 you spend at U.S. supermarkets in a calendar year (then 1 percent).
If you’ve been paying for groceries with a card like the Wells Fargo Active Cash® Card, for example, which offers unlimited 2 percent cash rewards on purchases, you’ll want to use the Blue Cash Preferred instead to earn 4 percent more cash rewards (up to the yearly cap).
Further, issuers like Chase and Discover offer 5 percent rotating bonus category cards that feature new cash back rewards categories every three months. If your new card has rotating bonus categories, you should activate those categories as soon as possible and keep an eye on the rewards calendar so you can plan ahead.
Earn your sign-up bonus
Many credit cards come with lucrative sign-up bonuses that can earn cardholders hundreds of dollars in rewards if they meet certain requirements after opening an account. In most cases, credit card issuers require cardholders to spend a certain amount of money during the first few months after opening a card to be eligible for the sign-up bonus.
To ensure you qualify, read the terms of the bonus offer carefully and structure your spending accordingly. It can be worth getting this bonus because of the many ways it could benefit you financially; you can apply it toward a monthly payment or large purchase, for example.
While you should always practice responsible borrowing and refrain from spending more than you can afford, the qualifying period for a welcome bonus is a great time to make any significant purchases you’ve been planning.
Explore redemption options
Go to the rewards portal for your card to learn more about redemption possibilities. If your card offers cash back, you may be able to choose from a statement credit, direct deposit or a check. If you’re earning miles, the portal will tell you how to redeem those miles for airfare, hotel stays and other benefits. And if you’re earning points, you may be able to choose from gift cards, merchandise, charitable donations and more.
Keep in mind that the value of your redemptions is not always the same. For instance, redeeming for travel purchases might get you a 1-cent-per-mile value, while merchandise might only get you 0.8 cents in value. There could also be a rewards balance requirement to make certain redemptions, such as a minimum of $25 in cash back earnings to redeem for a gift card.
In terms of travel, points and miles can be worth much more when transferred to airline and hotel partners, depending on the partner and rewards currency. Some cards also offer heightened rewards on travel booked through the issuer’s portal, such as the Chase Sapphire Preferred® Card’s 25 percent points boost on travel booked through Chase Ultimate Rewards. Bankrate’s travel toolkit has more information on using points and miles strategically, as well as general advice on travel credit cards.
Take advantage of all your card’s perks
In addition to earning rewards like points, miles or cash back, most rewards credit cards come with added benefits to further sweeten the deal. Travel credit card perks can include airport lounge access, credits for hotel stays and insurance for lost or delayed luggage. Cardholders can also often take advantage of discounts on Global Entry or TSA PreCheck and travel insurance covering your trip’s interruption, cancellation or delay.
Many cards come with perks related to shopping and entertainment, including extended warranties on items purchased with your card and discounts and special offers for shopping with certain retailers. Cards can also come with features like fraud and purchase protection.
The higher the annual fee, the more perks the card will likely come with. More premium rewards cards with fees in the $500 range often come with statement credits toward eligible travel or shopping purchases each year, but you’ll have to read the terms closely to ensure you get the full value out of these offers. If you can manage to get the most out of your rewards credit card, odds are you will spend enough to make up for the annual fee.
While many cardholders are understandably focused on the earnings potential of rewards credit cards, it’s definitely worth taking other related perks and benefits into consideration when choosing a card. These benefits can often save you money on things you would buy anyway.
Track your spending
Putting all of your purchases on a credit card can help you to maximize your rewards. Still, the earning potential of a rewards credit card is typically negated if you carry a revolving balance from month to month. This is because cards with a revolving balance accumulate interest, which you’ll have to pay off in addition to paying off your existing purchases.
Over time, using a credit card to spend above your means can result in a mountain of debt that is difficult to climb out from under. While many people understandably turn to credit cards when times are tight, we recommend paying off your entire balance each month whenever possible. If you avoid carrying a revolving balance, you can take advantage of credit card rewards and benefits without paying unnecessary interest.
That being said, you should use your credit card for every purchase, as long as you can pay your bill in full at the end of the month, in order to earn as many rewards as possible. And if you want to be able to hold yourself accountable, establish a budget and keep track of your transaction history to ensure you’re on track.
Read the fine print
Some issuers have particular rules regarding how retailers are coded and whether or not they fit a bonus spending category. For example, even though you can buy groceries at some Walmart and Target locations, many credit cards won’t reward you for grocery purchases at superstores.
Further, some issuers, such as Chase, add extra value to your rewards points when you redeem them a certain way (like the Sapphire Preferred’s bonus points on Ultimate Rewards travel, noted above).
Finally, some cards have difficult processes for redeeming rewards or even limits on how much cash back or points you can accumulate at once. You should also pay attention to what kind of redemption offers the most value. Cash back, statement credits, gift cards and travel accommodations will have different redemption values based on the issuer’s rules.
In either case, knowing how to convert your spending into rewards is important, and an easy to understand and flexible redemption structure can go a long way.
The bottom line
Credit cards can be a great tool to earn rewards on purchases, as long as you use them responsibly and don’t borrow more than you can afford.
In addition to earning points, cash back or miles, most of the best rewards credit cards come with plenty of additional perks and card benefits.
While the world of rewards credit cards can seem intimidating, knowing how to maximize credit card rewards in different ways can help you get the most out of your credit card spending.