Courtesy of Holly Johnson.
Holly Johnson.
- I have 26 credit cards - which is manageable with a little work and organization - and people always ask me for advice on credit.
- I see some people who pursue rewards with multiple credit cards make the same mistakes over and over, including using credit card debt to inflate their lifestyle, racking up debt without a plan, and paying their bills late.
- If you want to use credit to your advantage, it's crucial to keep balances low (or at zero) and only use credit cards in a way that benefits you.
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Currently, my husband and I have 26 different credit cards across our personal and business profiles. This sounds like a lot to keep track of, and it is, but we're very responsible with credit and we have our rewards game down to a science.
For example, we never carry a balance on our credit cards and we have no other consumer debt. We even paid off the mortgage on our primary residence a few years ago.
We also use credit cards strategically to earn the points and miles that let us travel the globe. And we maximize credit card benefits in order to access the best consumer protections and travel perks available today.
But since I write about credit cards and credit for a living, a lot of people ask me for advice. And, it never ceases to amaze me just how many things people pursuing credit card rewards get wrong.
Here are the most egregious credit mistakes far too many people make time and time again.
1. Thinking interest payments are no big deal
It absolutely surprises me just how many people pursue credit card rewards, but also carry a balance on their cards. This is despite the fact that, at most, you'll earn an average of 2% back in rewards for each dollar spent and, at the same time, the average credit card charges an APR that's well over 17%.
It doesn't take a math genius to figure out that paying 17% APR or more on your debts to earn 2% back on your purchases is a terrible deal, yet a lot of people don't think credit card interest is not a big problem if you don't pay it all year long.
The bottom line: You should only pursue credit card rewards if you plan to pay your credit card balances in full each month. If you carry debt while pursuing rewards, you're not doing yourself any favors.
2. Chasing rewards without a strategy
Another big mistake I see people make is pursuing rewards without a plan. I've met so many people earning miles in an airline program they can't even use to get to where they want, for example. I've also met countless people who have earned hundreds of thousands of hotel points in programs that don't even offer hotels where they prefer to stay.
There's no big loss in earning rewards you can't use, I suppose, but it's really a shame when you could be earning cash back or flexible rewards instead.
I always recommend having a plan for rewards before you sign up for a new credit card. And, when in doubt, consider a flexible travel credit card that lets you redeem points for travel, gift cards, merchandise, or statement credits.
3. Buying stuff without a plan to pay for it
This mistake is far too common when consumers are chasing sign-up bonuses on travel and rewards credit cards. Most cards require you to spend a few thousand dollars within a few months to earn a big bonus, and too many people see this as an opportunity to splurge for a new set of living room furniture or a flat-screen TV.
That's no big deal if you have the cash on hand to pay, but what if you don't? Then you're stuck paying 17% APR or more on your big purchase. You may have earned a sign-up bonus along the way, but chances are good your new debt will cost you a lot more in the long run.
4. Paying credit card bills late
When it comes to how your FICO score is determined, it's crucial to understand that your payment history is the biggest determinant considered. In fact, whether you pay your bills late or on time makes up 35% of your FICO score - more than any other factor.
If you plan to use credit cards, you should absolutely make sure you can pay your bill early or on time every month. If you get in the habit of making late payments, you will likely see your score plummet in a hurry.
5. Opening too many new cards at once
Another common rewards mistake is opening too many new credit cards at once. This usually happens when consumers get all giddy about earning sign-up bonuses, so they wind up opening one new card after another until their credit score takes a hit.
There are two main reasons too many new cards can impact your credit. First, "new credit" makes up 10% of your FICO score, and too many new cards is generally seen as a risky proposition. Second, the average length of your credit history factors into your FICO score, and too many new cards can shorten it in a drastic way.
The bottom line: Pursue rewards responsibly but slowly, and only open a few new credit cards every year. If you overdo it and pursue too many offers at once, you may regret it later.
Curious which credit cards I use the most and why? Here are some of my favorites:
- Chase Sapphire Reserve, because I earn 3x points on travel and dining.
- Ink Business Preferred Credit Card, because I earn 3x points on the first $150,000 each anniversary year in business categories such as social-media advertising and shipping.
- Hilton Honors Aspire Card from American Express, mostly for the Hilton Diamond status and travel perks.
- Discover it® Miles, because Discover matches all the miles you earn the first year.
- Blue Cash Preferred® Card from American Express, because I earn 6% cash back on up to $6,000 at US supermarkets each year, then 1%.
- Gold Delta SkyMiles® Credit Card from American Express, because I prefer flying Delta when I can.
- The Blue Business® Plus Credit Card from American Express, because I earn two times American Express Membership Rewards points, up to $50,000 per year, then one times with no annual fee.
- Chase Freedom, because I always max out the quarterly 5%/5x bonus categories (up to $1,500; activation is required).
- Citi® /AAdvantage® Platinum Select® World Elite™ Mastercard®, because I've been beefing up my stash of AA miles.
- CitiBusiness® / AAdvantage® Platinum Select® World Mastercard®, so I can earn American AAdvantage miles on my business purchases.
- AAdvantage Aviator Red World Elite Mastercard, because I earned the sign-up bonus with a single purchase.
- Citi Premier℠ Card, because I love the flexibility of Citi ThankYou Rewards.
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