The first article in our “Is it Worth It?” series tackles the tough topic of credit card points. Are they worth it?
Credit cards, when used properly, can be a valuable tool for building your financial well-being. Aside from the convenience of credit cards offer, using no more than one-third of your credit and paying off the bill in full every month is one of the most reliable ways to build your credit score.
That does not mean using a credit card comes without risks. Given that credit cards lack the tangibility of cash, if you are not careful, you can put yourself into significant debt. That is why you must master responsible credit card practices if you are going to use them.
Once you have mastered regular credit card use, you may want to try and earn some points so you can go for the credit card high score. In other words: opening credit cards with rewards programs in an attempt to save money overall, or just earn benefits you might not receive otherwise.
But what are these high-level credit card strategies? And are they even worth it?
It will take some research to determine which cards will maximize your rewards, but once you have done that, you can use those cards responsibly as part of the good habits you have already established.
“If you are in good standing and are making timely monthly payments on all outstanding cards, opening a new credit card account with rewards points that best suits your financial goals (i.e. travel, cash-back deals) may be a good option,” says Beverly Friedmann, who works for consumer review site ReviewingThis. “There are certainly a myriad of options for credit card accounts to open that can save you up to thousands per year and/or different types of travel incentives (i.e. mileage points and free hotel stays).”
Opening new cards can eventually offer a boost to your credit score — as long as you pay them off in full each month.
“Your debt utilization ratio will lower by increasing your overall credit limit, which will impact your credit score in a positive way,” explains Leslie H. Tayne Esq., founder and head attorney at debt relief services firm Tayne Law Group. “Make sure to not take on more debt, however, and pay off your balance in full each month to fully take advantage of this benefit of having a greater credit limit.”
Used properly, the right credit cards will not just save you money on big occasional purchases, but can actually make your regular, everyday expenses more affordable, as well. Take this personal example from Josh Hastings, founder of Money Life Wax: “My wife and I use a groceries and eating out only credit card to earn points. It is easy to track our monthly spending on food, we have a goal of staying below $350 each month, and we use the points to eat out! We do the same thing with a gas credit card too; we just always pay it off each month!”
Some experts are less enthusiastic about the idea of opening new credit cards to use for rewards, including financial expert Debbi King, who says there are two cons to opening a new credit card for the perks:
One, opening a new card will affect the length of credit history portion of your credit score. This factor is based on the length of time all credit accounts have been open. Opening a new card makes that time lower, which will lower your score and will lengthen the time it will take to reach the excellent time frame.
Two, opening a new credit card also adds to the temptation to buy something without the cash to pay for it. When you have credit cards available, you can be tempted to charge an item and pay it off over time instead of using cash. This increases your debt.
Many credit cards also come with additional straightforward costs, says Xavier Epps, founder and CEO of XNE Financial Advising.
“If you want to open new credit cards just for their points, you have to ask yourself if you do not mind taking on extra fees, such as the annual fee,” Epps says.
Finally, you need to be aware that applying for new cards can lead to a temporary mark on your credit score.
“Only apply for a card if you know that you are very likely to be approved for that card,” Tayne urges. “If your credit isn’t the highest and you are working towards increasing your credit score, you could be doing more harm than good, because a hard pull will lower your credit score by a few points.”
The bottom line
No matter what route you choose with your credit card use, the most important thing is maintaining your good credit card habits.
“With any credit card, users must make sure they make their monthly payments on time,” Epps asserts. “If not, they risk paying additional interest, losing money on late fees, and lowering their credit score, which can affect their ability to receive loans or other credit cards. Users can minimize these risks by maintaining a credit card utilization of 20% to 30%. Be sure the purchases you make are purchases you can pay for at a later date.”
It can be easy to get caught up in the excitement of opening new cards. Just be sure to always keep a level head.
Josh Hastings is a former High School Athletic Director at the secondary level who shifted his focus in 2016 to focus more effort on his entrepreneur endeavors. In 2017 he founded MoneyLifeWax.com (@moneylifewax), a personal finance site dedicated to helping millennials with student loans. With an emphasis on money and finance behavior, Josh started Money Life Wax to help millennials realize there are other ways to make money and be happy in the 21st century.
Debbi King (@DebbiKing) is a personal finance expert, motivational speaker, and the author of two award-winning books, “The ABC’s of Personal Finance” and “26 Weeks to Wealth and Financial Freedom”. She is also the host of a weekly radio show, “The ABC’s of Personal Finance”. Debbi has been featured in numerous media outlets empowering others to win in the area of money. In addition to her work, she is the founder and President of Lovell Ministries and is happily married with a beautiful 19-year-old daughter, 4 stepchildren and 5 wonderful granddaughters.
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The information contained herein is provided for free and is to be used for educational and informational purposes only. We are not a credit repair organization as defined under federal or state law and we do not provide "credit repair" services or advice or assistance regarding "rebuilding" or "improving" your credit. Articles provided in connection with this blog are general in nature, provided for informational purposes only and are not a substitute for individualized professional advice. We make no representation that we will improve or attempt to improve your credit record, history, or rating through the use of the resources provided through the OppLoans blog.