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Among your New Year’s resolutions may be things like filling out your Roth IRA, buying a house, or even traveling to that country that was on your to-do list. It’s important to have smaller goals as well as lofty goals, and if you want to improve your personal finances this year, consider starting with credit card benefits in your wallet.
While the primary purpose of credit cards is to have spending flexibility and earn rewards on your purchases, many cards offer additional benefits including airport lounge access, Global Entry credits/ TSA PreCheck, travel insurance, purchase protection and more. And by not using the card to its full potential, or even upgrading to a better card, you risk leaving money and value on the table.
Select details on how you can maximize your credit cards this year while remaining financially responsible.
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Many consumers use their credit card in a very simple way: spend and pay the statement each month. However, credit cards offer much more than meets the eye.
1) Do an audit to find out where you spend the most money
Americans leave about $30 billion worth of rewards on the table each year, according to Uthrive. This boils down to anywhere between $210 and $960 per consumer, and it usually happens by spending on the wrong card. You can avoid this by analyzing your expenses and finding where you spent the most money.
In fact, many card issuers will break down your spending by category to show you where you regularly spend. From there, you may be able to swap out one card for another to increase the amount of rewards you earn.
For example, if you regularly go to a restaurant with the Citi® Dual Charge Card, you’ll earn 2% cash back: 1% on all qualifying purchases and an additional 1% after you pay your credit card bill. While 2% cash back isn’t a bad reward rate, you can find better value in a card like the American Express® Gold Card, which gives 4X Membership Rewards® points per dollar spent at restaurants (including takeout and delivery).
This trick is best suited for consumers who use one credit card for all purchases, eliminating the hassle of having multiple cards and tracking spending categories. For me, I’m currently on a “one-card strategy”, with my go-to card being the Chase Sapphire Preferred® Card. I’m aware that I’m probably leaving rewards on the table, but I’ve decided that’s the right strategy for now.
However, by replacing your primary credit card with a card that better matches your biggest spending category, you can make a huge difference in the amount of rewards you earn.
2) Don’t waste your credits
In recent years, banks have added expense credits to many of their credit cards. Most notably, during the early months of the pandemic, issuers like Chase and American Express were offering rewards for more relevant purchases, like groceries and takeout, because travel credit cardholders weren’t able to use their advantages.
Now, spending credits becomes a must. Most recently, I took advantage of the $10 monthly Gopuff statement credits offered on my Chase Sapphire Preferred.
Premium cards, including Business Platinum Card® from American Express and The Platinum Card® from American Express, assign multiple credits to cardholders, including Uber credits, airline fee credits, and more. And since these cards have high annual fees, it’s even more important to use the credits to “recoup” some of the cost of the annual fee.
For me, the easiest way to track these spending credits is to track them in a specific section of my budget spreadsheet.
3) Use your travel insurance, if necessary
As more and more Americans have become cautious about travel and health issues, the travel insurance industry has seen a surge in the number of customers. In a recent survey of Allianz travel insurance, 84% of respondents indicated that they are likely or could be likely to purchase a separate travel insurance policy.
But did you know that your travel credit card can have free travel insurance as a benefit? By simply booking your flight on the correct card, your trip can be automatically covered in the event of a long delay or cancellation.
For example, I booked my Christmas flight using my Chase Sapphire Preferred® Card, and the return flight was canceled due to personnel issues. Because of this, the insurance policy kicked in and covered the costs of a new flight, hotel, and food. This policy alone makes the annual fee well worth it.
4) Consider requesting a line of credit increase
Your credit score is a very important part of your financial health, and your credit cards can actually be used to help build your credit score.
A credit score is made up of these five factors:
- Payment history (35% of your score)
- Amount owed and amount of credit used (30% of your score)
- New accounts opened (15% of your score)
- Length of credit history (10% of your score)
- Types of credit (10% of your score)
For this example, we will focus on the amount owed and the amount of credit used. Let’s say your credit card has a credit limit of $5,000 and your regular balance is around $2,000. This means that you are using 40% of your allocated credit, which can hurt your score. It is recommended to avoid using more than 30% of your allocated credit line.
But if you just call your credit issuer and ask for an increase in the line of credit, and they increase it to $10,000, that will bring your line of credit usage up to 20%.
By extending the amount of credit you have and using as little as possible, you can give your credit score a boost at no additional cost.
Although it does not use the benefits of the card, improving your credit score through responsible credit card use is a great benefit of having a credit card in your wallet.
At the end of the line
Over 190 million Americans have credit cards, and it’s safe to say that many of those cards aren’t maxed out to their full potential. Whether you have a card to earn money, travel rewards, or use one to establish your credit score — it’s wise to consider what your card can offer you beyond spending flexibility.
However, the basic principle of maximizing your credit card is to spend within your means and pay off the balance in full each month to avoid paying credit card interest. Paying only the minimum payment can lead to financial disaster.
Editorial note: Any opinions, analyses, criticisms or recommendations expressed in this article are those of Select’s editorial staff alone and have not been reviewed, endorsed or otherwise endorsed by any third party.