When applying for a rewards card, it pays to think carefully about how and when you’ll use it. A rewards card that sounds good on paper could wind up being a poor fit if you don’t take advantage of all the card’s features.
I’ve been there. The first time I applied for a rewards card, I spent less than five minutes considering whether it was a good fit. A personal banker at Chase pitched a cash-back card while I opened a new checking account, and I impulsively accepted. I’d heard good things about the Chase Freedom card, and I figured the 5 percent cash-back bonus on rotating purchases would be an easy way to turbocharge my earnings.
It turned out to be a mistake.
Power users of cash-back cards with rotating 5 percent bonuses check which categories are coming up, so they can strategically tailor their spending to earn the most cash back.
I am way too disorganized for that.
I would have been better off applying for a simpler rewards card that offered 1.5 percent or more on every purchase. (Chase, in fact, recently debuted a simpler version of the Freedom card. Freedom Unlimited offers 1.5 percent cash back on every purchase.)
According to a recent J.D. Power survey, more than 20 percent of cardholders are leaving money on the table by using cards that don’t jibe with their spending.
If you’re thinking about applying for a new rewards card, think carefully about your spending habits and ask yourself these six questions:
1. Will I take the time to track bonus categories?
Be honest with yourself. If you won’t routinely check what purchases will earn you bonus rewards and strategically align your spending, you won’t maximize your earnings with these cards.
2. What purchases do I make most often?
Many of the best rewards cards offer bonus points on certain types of purchases, such as hotels or groceries. If you have a big family or a long commute to work, that bonus on gas and grocery spending can be substantial.
3. Will I carry a balance? The best rewards cards often charge high APRs, so if you’re likely to carry a balance, pay more attention to the advertised APR than the rewards rate.
4. Will I redeem my rewards for travel or something else? Many rewards cards offer a variety of redemption options, but the value of those rewards varies at redemption. For example, points tend to be more valuable when redeemed for travel than for merchandise.
5. If I choose a travel card, do I care about when or how I travel? Some travel cards have blackout dates and other restrictions on rewards-funded travel, making it harder to plan your trip. Others don’t. Some rewards cards are aligned with a specific airline or hotel chain, while others offer rewards than can be applied toward any travel-related purchases.
6. Are travel perks worth a large annual fee? Some travel rewards cards have hefty annual fees, but they include travel credits and airport lounge access. But if you’re not a frequent traveler likely to benefit from these perks, the annual fee may not be worth it.
No matter which rewards card you choose, take some time to review how you’ve been using your new card. If you aren’t earning as much as you would like or rarely use a card’s specific benefits, it may be time to choose another card that better matches your spending habits.
That’s what I did. I’ve switched over nearly all my spending to the Discover Miles card, and I have been pretty happy with how much I’ve earned in rewards.