Starting out in the credit card hobby of earning lots of miles, points and rewards can feel overwhelming. Today I want to give you a list of rules or guidelines to help beginners that I think are the most important to keep in mind. Some of these seem obvious, and some might have never crossed your mind. Hopefully if you are a beginner you will come away with learning at least one new thing to consider when applying for a new rewards card.
Always Pay in Full
This is my top rule. The value of points and miles will instantly evaporate if you do not pay your bill in full each month. Interest rates on the best rewards credit cards can be in the 20-30% range. That’s huge! When you are earning 1-5% back on each transaction no further math calculation is needed to see why you do not come out ahead if you do not pay your bill in full each month.
Be aware of your credit score
Even if you do not go deep into the points and miles world it is just good to know your credit score. A credit score will be used to qualify you for a mortgage, car loan, or any other personal loan so it is good to know your score.
Knowing your credit score is critical before choosing to apply for a new rewards credit card. Different types of credit cards require different minimum credit scores. It would not make sense to apply for a credit card that requires a higher minimum credit score than your own personal credit score.
Read the terms and conditions
For every benefit, perk, or bonus, the same rule applies – read the terms and conditions. Each time. Without exception.
This is the boring answer as no one likes to sort through the terms and conditions, but if you do not meet the guidelines of the terms of conditions for a specific credit card benefit you will have little to stand on if you try to work something out with a customer service representative. Of course there are always exceptions, but it is always better to play it safe by knowing the full terms.
A common portion of the terms of conditions of a rewards credit card to be familiar with is the section on earning the sign-up bonus. We all know a sign-up bonus can provide major outsized value, however, to earn the sign-up bonus you must know the full terms to qualify. An abbreviated, unofficial, non-legal language phrased example would be:
Earn 100,000 miles by spending $5,000 on your card within the first three months of card membership. The three months starts from the day of your approval. Any gaming or suspicious card activity will disqualify you from the sign-up bonus and could result in the shut down of your account.
These are common points when meeting the sign-up bonus requirement. You need to make sure you spend the appropriate amount to qualify within a set time frame. “Gaming” the system is also discouraged which could include buying gift cards or cash equivalents to meet the minimum spend requirement. Avoid this type of activity, and check out some of my suggestions on how to meet the minimum spend requirements without breaking your budget.
Don’t do shady activity
This point picks up right off where the point above. Doing shady activity risks getting your credit card shut down and potentially qualifying for future credit cards from that bank. There are numerous websites and tips on how to “game” the system to earn more points and miles. I won’t be discussing them here because it is risky. It is easy enough to find that information on your own if that is what you want to do.
Basically, I’m discouraging this because it is outside the terms and conditions, and banks also have the right to change their terms over time. So what might work for one person at one point in time does not work for you in the present day. Or something that you might have gotten away with once has now grown into a bigger habit which catches the bank’s attention.
The bottom line is if you enjoy your credit card rewards and want to keep them then proceed at your own risk if you want to push the boundary of what the bank could shut you down for.
Keep your card open for a year or more
A lot of you might be wondering if there is a point in keeping a card after earning the sign-up bonus. Sometimes there is a good ongoing rewards structure or ongoing benefits where it makes sense to keep the card indefinitely. Other times it doesn’t.
Regardless if you know that you will shut a card down after earning the sign-up bonus please keep the card for at least a full calendar year. There is often language in the terms and conditions that a bonus could be clawed back, meaning you would owe it back to the bank, if you close your card within a year. The bank doesn’t want you to open the card and close it right away after earning the sign-up bonus because they would be losing money on you as a customer.
As a best practice I keep my cards open as long as it makes sense. That means I’ve never canceled a card that has a $0 annual fee. I always keep mine for at least one year until the next annual fee is billed. If I am no longer getting benefits to match the annual fee I call the bank and ask for a retention offer (link) to offset some or all of that cost.
Don’t overextend yourself
When you are new to the points and miles game it can be an exciting time. You are learning, earning and redeeming your rewards for free travel or cash back. When you are just starting out and excited about earning thousands of points and miles it is important to not overextend yourself by opening up too many cards at once.
There are a few reasons for this. One obvious reason is that you will be required to spend more to meet a sign-up bonus. As this relates to my first rule you do not want to get into a position where you are spending extra money each month just to earn rewards. This is a critical factor when deciding which rewards credit card to apply for.
The second reason you should not overextend yourself is it could impact your credit score, and some banks may be hesitant to approve you for future cards if you keep applying for new ones at a rapid rate. There is a lot of nuance to this topic with rules such as Chase 5/24. I always recommend pacing yourself, especially for beginners. Over time you will learn what to lookout for when going after new cards, and how to extend yourself within reason.
Learn the unwritten rules
The last rule is to always be learning the ins and outs of credit card rewards. Like any new topic in life, this occurs naturally the more you read and surround yourself with information on the topic. There are tons of “rules” that are known to credit card enthusiasts that the general population does not know or think about when selecting a new credit card. As you expand your knowledge the “rules” will become second nature.
Over time you will learn more about how often you should apply for a new card, how to increase your credit score, having a better idea if you will get approved for a card before applying, and so much more!
Final Thoughts
This list of rules isn’t an exhaustive list, however I think I have covered the main points for beginners who want to jump into credit cards for travel rewards or cash back. I have been applying for cards for several years now, have earned over a million miles, and taken several free international flights over the years. Thinking back to when I first started out, these are the main points that I would have wanted to know, so hopefully you have found this list helpful!