The Worst Ways to Use a Rewards Credit Card

Rewards credit card are among the best types of credit cards to have. If you use your credit card the right way, you’ll receive rewards simply for purchasing things you might have purchased anyway. However, there are some unwise ways to use rewards cards that will make it harder for you to earn rewards or reduce the value of the rewards you do earn.

For a balance transfer. You may find rewards credit cards that offer a promotional interest rates on balance transfers. While taking advantage of this kind of credit card offer may be good way to save money on a balance with a high interest rate, it can make it harder to earn rewards on the credit card. You won’t earn any rewards on the transfer itself, since rewards are only paid on purchases, not balance transfers. Then, once you’ve transferred the balance, you’ll have less credit available for making purchase that actually will earn rewards.

Transferring a balance to a rewards credit card is an especially bad idea if you’re trying to earn a signup bonus. Most of the credit card signup bonuses require you to spend a certain amount of money on purchases within the first three months of having the credit card. Having a balance consuming your credit limit will make more difficult to meet that spending requirement.

For a cash advance. You should skip a cash advance for a similar reason to why you should skip a balance transfer. Cash advances are charged a fee, typically $5 to $10 or 5% of the cash advance account. You won’t earn any rewards on the cash advance and, as with a balance transfer, the cash advance will take up credit that you could use for purchases that would earn rewards.

While credit card cash advances are generally a bad idea, if you’re in a crutch and must take out one, opt for an existing non-rewards credit card. Pay off the cash advance quickly (even before your statement arrives if you can) to minimize the amount of interest you pay on the balance.

By carrying a balance. Paying your balance in full each month is generally a good strategy, even more so for rewards credit card. Remember that your goal is to earn rewards, so any fees you pay reduces the value of the rewards you earn. For example, say you earn $5 in rewards in a particular month. If you pay $3 in interest, your net earnings is really only $2.

By making payments late. There are two important reasons to make your payments on time. First, you want to avoid paying late fees because they will only offset or completely negate the rewards you’ve earned on your credit card. Second, late payments could cost you to forfeit some or all of your rewards depending on the terms of your reward program.

Maximizing your rewards means following some basic rules with your rewards credit card. Use your card only for purchases, focusing on the purchases that will earn the most rewards. And always pay in full and and on time to avoid paying interest and late fees.