How to Manage Credit Card Reward Points Wisely

Many credit cards make it a breeze to earn cash back and rewards just for paying your regular bills. While amassing points can be fun, it pays to be savvy when using your card to make sure you don’t spend more money than you originally intended to.

Here are three ways to make sure that your quest for earning credit card rewards doesn’t present unintended costs:

1. Calculate rewards potential before you spend.

Earning cash back and rewards on staple items like groceries or gas — and even major purchases like home improvements — can be a tempting incentive to move your rewards credit card to the front of your wallet.

But many rewards programs include stipulations including “caps” on your rewards earning potential for spending in certain categories during specific time frames.1 Other may require that earn a certain denomination of reward amount before it can be redeemed.

If a program states you can earn 5% on purchases for a specific quarter, but states a limit of $1,500, for example, the maximum you’ll stand to earn under the promotion is $75. Calculate the implications those details may present so you can strategically optimize your rewards earning potential.

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2. Research how your creditor defines a category.

Rewards credit card issuers often promote the opportunity to earn additional rewards for purchases in assigned categories (like restaurants, groceries, and gas). But as experts at CreditCards.com explain, 2 creditors use merchant category codes (MCC) to define various retailers — which may vary by creditor. 3 If your creditor doesn’t consider retailers like Target, Costco or Wal-Mart as a “grocery store” based on the assigned MCC, for example, you may not earn the maximum points for a grocery rewards promotion — even if you buy groceries there.

3. Manage your balances based on your credit line.

Using your rewards credit card for everything you purchase may seem like a no-brainer way to earn points and cash back, but there are implications to carrying high credit card balances — even if you pay them in full each month to avoid interest charges. Experts at Vantage Score4 recommend that cardholders use no more than 30% of a credit line at any given time.

Further, Experian experts point out5 that credit balances can be reported to the credit bureaus any time in the month; the only way to ensure your zero balance is reported is to pay your statement in full — and avoid making purchases during the next billing cycle. This is especially important if you intend to apply for a mortgage or auto loan in the near future. The higher your credit score, the greater the likelihood that you’ll have access to the most competitive loan options and interest rates.

1 http://www.discovercard.com/application/terms?srcCde=KB48&mboxSession=1417018794512-839168#launchCalendar

2 http://www.creditcards.com/credit-card-news/how-mcc-codes-are-used-credit-card-issuers-1280.php

3 http://www.irs.gov/irb/2004-31_IRB/ar17.html

4 http://www.experian.com/blogs/ask-experian/2013/10/30/how-utilization-rate-affects-credit-scores/

5 http://www.experian.com/blogs/ask-experian/2013/08/29/responding-to-credit-score-factor-proportion-of-balances-to-limits-is-to-high/

Legal Disclaimer: This site is for educational purposes and is not a substitute for professional advice. The material on this site is not intended to provide legal, investment, or financial advice and does not indicate the availability of any Discover product or service. It does not guarantee that Discover offers or endorses a product or service. For specific advice about your unique circumstances, you may wish to consult a qualified professional.

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  • Discover It Card

    Earn big‑time cash back that never expires.

    Sponsored

    Earn big‑time cash back that never expires with Discover it®.

    Sponsored

    Get the credit card that's got it all: Discover it®.

    Discover it® gives you big‑time cash rewards with 100% U.S.‑based customer service.

    Discover it® Card

    Sponsored

    Get the credit card that's got it all: Discover it® 

    Discover it® gives you big‑time cash rewards with 100% U.S.‑based customer service.  

    Sponsored

    Earn big‑time cash back that never expires with Discover it®

    Earn big-time cash back that never expires with Discover it. See Rewards
Earn big-time cash back that never expires with Discover it. See Rewards