Personal Finance

Secrets of credit card super users

Key Points
  • Credit-card issuers scrambling for customers have sparked a rewards war in recent years. 
  • For consumers who take full advantage, finding the right rewards card can be very profitable.
  • There are also pitfalls to chasing benefits and sign up bonuses, which can hurt your credit in the long run.
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When Jeremy Steiner, 30, was ready to propose to his now-fiancé, Kaja Olcott, 29, he first made another commitment:

A new credit card.

Steiner signed up for the Capital One Venture card in order to earn 50,000 miles (roughly the equivalent of $500) when he purchased an engagement ring. The card also comes with hotel upgrades, concierge services and waives foreign transaction fees for travelers abroad.

All of that will come in handy since the couple is planning on an African safari honeymoon in January (she said yes, by the way).

Over the past few years, card issuers have upped the ante with better rewards and sign-up bonuses to attract customers. And in return, some credit card holders are wising up to the benefits game.

Steiner is one of a growing number of savvy shoppers maximizing reward cards, which dole out points when you make purchases at airlines, gas stations and restaurants, and saving money — or in some cases making money — as they make purchases they would do in any case.

And card issuers are taking notice.

J.P. Morgan Chase last week said its credit-card customers were redeeming points faster than anticipated, resulting in a $330 million charge in an otherwise positive second-quarter earnings report

Despite the uptick, only a select few are taking advantages of all the perks that reeled them in, according to Bill Hardekopf, credit card expert and CEO of Lowcards.com.

At the very least, you should be earning at least 2 percent back on all of your purchases.
Greg McBride
Bankrate's chief financial analyst

U.S. consumers collectively hold 3.8 billion memberships in loyalty programs, up from 3.3 billion in 2015, according to data from research firm Colloquy. But more than half of those memberships, or 54 percent, are inactive, and 28 percent of consumers have abandoned a program "without ever having redeemed a point or mile."

“At the very least, you should be earning at least 2 percent back on all of your purchases,” said Greg McBride, the chief financial analyst at Bankrate.com.

To boost your earning potential even further, Lee Huffman, a senior analyst at of reward-comparison site RewardExpert, recommends grouping an airline card that offers free checked bags and priority boarding with a cashback card, such as Citi Double Cash, and a rotating card like the Chase Freedom or Discover It, which offers up to 5 percent back in a variety of categories that change throughout the year. For those in the know, this is referred to as "stacking."

(To keep taps on the rewards, Huffman suggests affixing a sticker to the back of each card with its benefit: For example, “2x on groceries” or “3x on gas.”)

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If you don’t take full advantage of the rewards, many offers do not make sense, Huffman said.

Depending on how much you spend each month, signup bonuses and other rewards don't always offset the cost of an annual fee, which can be as much as $450 depending on the card, according to personal finance site WalletHub.  (Don't rule out a card entirely because of the fee, either. Often these cards have better initial bonuses and higher earning rates than cards without a fee.) CNBC Make It has ranked the best travel and cash-back cards.

You must also be able to hit the minimum spending requirement to reap any rewards at all, which is generally $2,000 to $3,000 over the first three months. The popular Chase Sapphire Preferred comes with a 50,000 point rewards bonus — if you spend at least $4,000 within the first three months of opening your account.

“All of these initial bonuses come with a caveat,” Hardekopf said. “Make sure you read the terms and conditions.”

The same goes for the interest rate, or APR, which is generally higher for rewards cards to compensate issuers for the additional perks.

“If you carry a balance even occasionally the interest rates will wipe out much if not all of the reward benefit you are earning,” McBride said.

And some of the most enticing offers are only available to those with good or excellent credit. In addition, opening and closing cards purely to snag the initial sign up bonus can ding your credit score if you are not careful. (One of the key components of a score is your credit history, which is the length of time you’ve had accounts open.)

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Key Points
  • With Apple, Uber and Ikea launching branded credit cards, millennials (and older people) have more options than ever.
  • However, some of these cards have a high APR and any perks are quickly negated if you carry a monthly balance.