As the competition among finance providers intensifies, credit card companies are constantly improving their offers to entice new customers. It's no surprise then that consumers are discovering more and more ways to exploit these offerings for the best credit card terms and rewards around. So, why shouldn't you take advantage of these opportunities, too?
Credit card hacks like using strategic card combinations, being smart with balance transfers, and securing a 0% APR can drastically improve your perks. However, certain tricks can backfire big time. Knowing which hacks work and which to avoid will ensure you don't end up with costly consequences.
With so many cool tricks and tips to choose from, we're taking a moment to narrow down the most impactful ones so that you can enjoy maximum benefit. Let's get cracking!
Credit Card Usage Tips Everyone Should Know
Whether you're searching for awesome rewards, low interest rates, free travel, or all three, you'll find there are multiple credit card hacks to help you achieve your objective. The problem is that bad credit card habits can quickly get out of control and become a major problem.
The following credit card usage tips will ensure you use your card responsibly while putting your best foot forward in maintaining a healthy credit score and gaining substantial rewards.
1. Pay Your Balance in Full Every Month
Although your credit card issuer only requires a minimum payment toward the card's balance each billing cycle, this approach can quickly wrack up interest and cost you more in the long run. You may feel the smaller payment isn't as hard on your wallet, but the reality is that you're only paying a portion of that amount to your capital, with the rest applied to accrued interest.
In other words, the $1,000 in impulse splurges you charged to your card throughout the month could take 18 months to pay off and cost $160 in interest if you're paying a $65 minimum payment and 19.49% in interest (the average APR on credit cards right now). Doesn't sound too smart, does it?
Consider setting automatic payments to protect yourself against unnecessary interest charges. This will also prevent late payments that might incur additional fees.
2. Keep Your Credit Utilization Ratio Under 30%
Credit utilization is the amount of credit you're currently using versus the total amount of credit you have available. It's the second biggest contributing factor in calculating your credit score, so running up debt by maxing out your cards can actually hurt your financial health. Since credit utilization is predictive of future repayment risk, FICO recommends that your credit utilization ratio be no more than 30%.
One thing to keep in mind is that the ratio applies to the sum of all your cards. For example, if you only have one card with a $10,000 limit, you shouldn't use more than $3,000 of it at any given time. However, if you have one card with a $3,000 limit that you've maxed out and a second card with a $7,000 limit with no balance, you're still within the 30% ratio because you're only using $3,000 of the total $10,000 credit limit.
3. Use Mid-Cycle Payments to Boost Your Credit Score
Your card provider doesn't necessarily report your account information to credit bureaus after you make your monthly payment. As a result, the credit utilization ratio reflected in your credit scores could be high or low.
Making a mid-cycle payment or extra payments throughout the month does two things: 1) it lowers your balance (and therefore credit utilization ratio), and 2) It saves you money on interest since they base interest calculations on your daily balance. Of course, the second benefit doesn't matter if you're paying your balance in full each month. However, if you want to keep your credit utilization ratio low, don't wait until the due date to pay down your balance.
4. Use Rewards Cards
If you use a credit card for most purchases, you should use one that offers rewards. While there are decent hacks you can use for standard credit cards, a rewards card can help you maximize value with cash back, points, vouchers, gift cards, and other amazing perks for things like travel, insurance, price protection, and more.
Just make sure you understand your card's rewards program and tier system. You'll also want to ensure you redeem your rewards before their expiration date.
What about next-level credit card hacks—the ones that give the biggest bang for their buck?
Credit Card Hacks that Work Like a Bomb
Whether you can leverage some of these hacks will depend on your credit score and overall financial health, as they require you to qualify. However, they're some of the most potent hacks for gaining the best deals and biggest rewards.
1. Amplify Rewards with Strategic Card Combinations
Rewards cards are available in many variations, but they typically have one of two rewards structures: they either pay a flat reward rate on all purchases, or they pay bonus rewards in specific categories with all other purchases earning a base reward rate. Combining a flat-rate card with a card that offers better rewards for categories in which you tend to spend the most can significantly boost your earnings. For optimal combinations, consider combing cards grouped in either cash back, travel, or no annual fee credit card categories.
Another heavy-hitting strategy is to combine different cards from the same provider. More specifically, you want to go for a card trifecta. This includes a card that earns rotating rewards quarterly, a card that earns flat rewards all year long, and a card that will let you redeem those rewards at a higher rate.
For example, the Chase Freedom Flex card for rotating categories, the Chase Freedom Unlimited card for year-round rewards, and the Chase Sapphire Reserve or Preferred card for transferring and redeeming points lets you earn the maximum amount of points while redeeming them for the highest value. This approach has tremendous hidden value, often doubling, tripling, or even quadrupling the value of your rewards.
2. Save on Interest with a 0% APR Promotion
Cards with a long 0% APR promotional period can save you hundreds—if not thousands—of dollars in interest. Depending on the issuer, the promo period can last anywhere from 12-24 months, with some cards offering rewards and sign-up bonuses. Opting for this type of card is an excellent hack if you need to make a large purchase or need a line of credit but want to limit the interest you pay. You will need a higher credit score to qualify, so check out your options before applying.
3. Get Your Annual Fee Waived
Believe it or not, some credit card providers will waive your annual fee if you ask. This can drastically boost the value of your rewards because you're not paying extra to earn them. However, you may need to provide a good reason for the waiver. Be prepared to make a strong case with evidence of financial hardship, job loss, or cut hours. You can also use proof that you've been a responsible credit user to plead for a lower APR or fee waiver.
4. Be Smart About Balance Transfers
If you have a troubling amount of debt, one hack that can work wonders is a balance transfer. This simply means transferring credit card debt from exiting cards to a balance transfer card with a lower interest rate and better terms. This can help you pay down your debt faster (especially if you use a 0% APR balance transfer card), as more of your payment goes to the principal amount rather than interest. The key to being successful with this hack is paying your balance before higher interest rates kick and avoiding additional debt.
5. Pair Your Credit Cards with Rebate Sites
Rebate sites and online shopping portals like Rakuten, Mr. Rebates, and RetailMeNot can earn you cash back and points on purchases from eligible retailers. The best part? You can combine these savings with credit card rewards if you use your card to shop through these sites, effectively stacking up cash back, points, and miles in addition to coupon and sales savings.
Now that you've got some great credit card hacks in your arsenal, which tricks should you avoid?
Credit Card Hacks to Avoid
Unfortunately, some credit card hacks can dig you deeper into debt, get you blacklisted by credit card companies, and more. Here are some of the tricks you should avoid like the plague.
1. Trying to Get Multiple Sign-Up Bonuses by Canceling and Reopening Cards
Although it's common credit card hacker's trick, card issuers have become fully aware of this frowned-upon activity. As a result, they put several limitations in place to deter and prevent consumers from opening and closing cards just for sign-up bonuses. Besides preventing you from earning bonuses on reopened cards, they won't approve you for new cards for anywhere up to 24 months.
2. Buying and Then Returning Items Simply to Earn Rewards
There's a mistaken belief that if you return items you purchased with your card, you get to keep the rewards. That's simply not true. When your card gets refunded for your return, the cash back, points, or miles you earned get returned, too.
Keep reading: What Happens to Credit Card Debt When You Die [ANSWERED]
3. Canceling a Card Before the Annual Fee Kicks In
Banks and credit card issuers want to form long-term relationships with customers, so they don't take too kindly to consumers who grab their large sign-up bonuses but close their accounts before the annual fee comes due. If you haven't used the rewards or transferred them, you may lose them entirely. In addition, you may be barred from future approval by your issuer. If you're not getting enough value from your card, rather downgrade or ask for a fee waiver as we suggested earlier.
4. Using Credit to Purchase Prepaid Cards
Not being able to use your credit card for regular expenses like utility bills and rent can be frustrating. Some card hackers will buy prepaid cards to pay these bills as a workaround, but retailers have caught onto this trick and no longer allow prepaid card purchases with credit cards. While services like Plastiq offer an alternative solution, the reality is that the associated fees outweigh any rewards you'll earn on your credit card.
Credit cards are an excellent tool for boosting your credit score and building a strong financial future, but you must handle them with care and a whole lot of money smarts. It's tempting to come up with hacks that can earn you as many perks as possible, but it could backfire as card issuers wisen up to these schemes. Be sure to use proven tips known to work without crossing the line into territory card issuers won't like.
Shawn Manaher is a former financial advisor, has founded 5 online businesses, and is a coach, speaker, podcast host, and author. He's been featured on Forbes, The Consults Corner on TAE Radio, The Writing Biz, What's Your Story, and more.