How to maximize your credit card rewards
Key takeaways
- Rewards credit cards vary in many ways, from the types of rewards they offer — such as points, miles or cash back — to the way those rewards are structured.
- To take advantage of your credit card rewards, familiarize yourself with each card’s structure, meet the new cardholder welcome bonus and explore the value of each card’s redemption options and benefits.
- Read each card’s fine print to understand caps on category spending and rewards balances needed for certain redemptions, among other details that can limit your redemption potential.
When used wisely, credit cards are a solid 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. These rewards can add up to some serious savings on your regular spending over time.
Rewards credit 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 as few credit card fees as possible.
Maximize your credit card rewards by knowing the ins and outs of your rewards credit cards and applying these seven strategies.
Choose rewards structures that match your spending habits
Before you can maximize credit card rewards, you need to make sure you get the right cards in the first place. The best rewards credit cards should help you make the most of your spending habits and lifestyle. Because individual cards award different types of rewards on your spending, start by clearly identifying the types of things you spend on most in order to maximize your earnings.
If you travel frequently, for example, you might want to compare credit cards that reward cardholders with boosted points, miles or cash back on travel expenses. If you spend a lot on groceries and gas, look for at least one 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 an ideal card to add to your wallet.
Use the best card for each rewards category
Once you’re confident that you have the right rewards credit cards for your needs, it’s time to optimize your spending on them. Check your wallet for the cards that offer the best rewards for what you’re spending on.
Let’s say 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, and then 1 percent after.
If you’ve been paying for groceries with a flat-rate card like the Wells Fargo Active Cash® Card, which offers unlimited 2 percent cash rewards on purchases, you’ll want to use the Blue Cash Preferred to earn 4 percent more cash rewards (up to the yearly cap) instead. Once you’ve reached the cap on grocery spending, it makes sense to switch back to the Active Cash Card to earn an extra 1 percent on your purchases.
Further, issuers like Chase and Discover offer 5 percent rotating bonus category cards that feature new cash back rewards categories every calendar quarter up to a spending cap and with activation required. 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, also called welcome bonuses, that can earn cardholders hundreds of dollars in rewards if they meet the stated requirements after opening an account. In most cases, credit card issuers require cardholders to spend a specific amount of money during the first few months after opening a card to be eligible for the sign-up bonus.
To ensure you qualify after getting a new card, read the terms of the bonus offer carefully and structure your spending accordingly. While you should always borrow responsibly and refrain from spending more than you can afford, the qualifying period for a welcome bonus is a great time to make a large purchase you’ve already been planning to make.
Explore redemption options
Go to the rewards portal for each of your cards’ rewards programs to learn more about redemption possibilities. If your card offers cash back rewards, 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 travel redemptions, gift cards, merchandise, charitable donations and more.
Keep in mind: The value you receive for your points, miles or cash back is not always the same across all of the available redemption options. 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 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 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 and its 25 percent points boost on travel booked through Chase Ultimate Rewards.
Check out Bankrate’s travel toolkit for more information on using points and miles strategically, as well as general advice on saving money with travel credit cards.
Take advantage of all your card perks
While many cardholders are understandably focused on the earnings potential of rewards credit cards, it’s worth considering other related perks and benefits when choosing a card. Taking advantage of these benefits can often save you money on things you would buy anyway.
In addition to earning rewards like points, miles or cash back, most rewards credit cards further sweeten the deal with added benefits. For example, some of the perks you can get with the best travel credit cards can include:
- Airport lounge access
- Credits for hotel stays
- Insurance for lost or delayed luggage
- Credits toward application fees for Global Entry or TSA PreCheck
- Travel insurance covering trip interruption, cancellation or delay
Many rewards cards also 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 valuable your card’s perks typically are. Elite or premium rewards cards — cards with fees in the $500 range — come with statement credits toward eligible travel or shopping purchases each year, but you must read the terms closely to ensure you get the full value out of these offers. If you learn how to take advantage of your rewards credit card’s perks, you can more than make up for the annual fee.
Pay off your bills in full each month
Putting all of your purchases on a credit card can help you to maximize your credit card rewards. Still, you’ll typically negate the earnings potential of your card if you carry a balance from month to month. This is because cards with a revolving balance accumulate interest, which you must pay 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’s 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 balance, you can take advantage of credit card rewards and benefits without paying unnecessary credit card interest.
That said, in order to earn as many rewards as possible, you should use your credit cards for every purchase — provided you can pay your bills in full at the end of the month. 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 whether a given retailer fits a bonus spending category. For example, even though you can buy groceries at some Walmart and Target locations, many credit cards don’t consider these to be “grocery stores” and won’t award you bonus points on purchases you make there.
On the other hand, some issuers add extra value to your rewards points when you redeem them in a certain way (such as Chase offering a 25 percent bonus on Sapphire Preferred points redeemed through the Ultimate Rewards travel portal).
Finally, some cards have difficult processes for redeeming rewards or even limits on how much cash back or how many points you can accumulate at once. You should pay attention to what types of redemptions offer the most value, as well. Cash back, statement credits, gift cards and travel accommodations can have different redemption values based on the issuer’s rules.
In any case, knowing how to convert your spending into rewards is important, and a simple, flexible redemption structure can go a long way toward maximizing your rewards.
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. Paying off what you owe each month helps you avoid interest and maximize your rewards to the fullest extent possible.
In addition to earning points, cash back or miles, the best rewards credit cards also come with plenty of additional perks and card benefits.
While the world of rewards credit cards can sound intimidating, knowing how to maximize credit card rewards in different ways can help you get the most out of your credit card spending.
