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Among your new years resolutions may be tasks like filling your Roth IRA, buying a home or even traveling to that one country that's been on your bucket list. It's important to have smaller goals along with lofty ones, and if you're interested in improving your personal finances this year, consider starting with the benefits of the credit cards in your wallet.
While the main purpose of credit cards is to have spending flexibility and to earn rewards on your purchases, many cards have additional benefits including airport lounge access, Global Entry/TSA PreCheck credits, travel insurance, purchase protection and more. And by not using the card to its fullest potential, or even switching to a better card, you may be leaving money and value on the table.
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Many consumers use their credit cards in a very simple manner: spend and pay the statement each month. However, there is much more to credit cards than meets the eye.
1) Do an audit of where you spend the most money
Americans leave about $30 billion in rewards on the table every year, according to Uthrive. This boils down to anywhere between $210-$960 per consumer, and this typically happens by spending on the wrong card. You can avoid this by analyzing your spending and finding where you spent the most money.
In fact, many card issuers will divide up your spending based on category for you to show you where you regularly spend. From there, you may be able to replace one card for another to increase the amount of rewards your earn.
For example, if you spend regularly at restaurants with the Citi® Double Cash Card, you will earn 2% cash back: 1% on all eligible purchases and an additional 1% after you pay your credit card bill. While 2% cash back isn't a bad rewards rate, you may 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 tip is best suited for consumers who use one credit card for all purchases, which avoids 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 I'm probably leaving some rewards on the table, but I've made the decision it's the right strategy for now.
However, by switching your main credit card to one that better complements your largest spending category, you can drastically make a difference in the amount of rewards you earn.
2) Don't let spending credits go to waste
In recent years, banks have been adding spending credits to many of their credit cards. Most notably, during the early months of the pandemic, issuers like Chase and American Express were shelling out rewards for more relevant purchases, like grocery stores and take out food, as travel credit card holders were unable to use their benefits.
Premium cards, including the Business Platinum Card® from American Express and The Platinum Card® from American Express, allot several 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 "earn back" some of the cost of the annual fee.
For myself, the easiest way to keep track of these spending credits is by tracking them in a specific section on my budget spreadsheet.
3) Use your travel insurance, if needed
As more Americans have become cautious of travel hiccups and health-related issues, the travel insurance industry has seen a large spike in customers. In a recent survey from Allianz Travel Insurance, 84 percent of respondents indicated that they're likely or may be likely to purchase a separate travel insurance policy.
But did you know your travel credit card may have complimentary travel insurance as a benefit? By simply booking your flight on the right card, your trip can automatically be covered in the case it's severely delayed or cancelled.
For example, I booked my Christmas flight using my Chase Sapphire Preferred® Card, and the flight home was cancelled due to staffing issues. Because of that, the insurance policy kicked in and covered the costs of a new flight, hotel and food. This policy alone makes the annual fee absolutely worth it.
4) Consider asking for a credit line 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'll focus on the amount owed and amount of credit used portion. Let's say your credit card has a credit limit of $5,000 and your regular balance is around $2,000. That means you're using 40% of your credit allotted, which can be detrimental to your score. It's recommended to avoid using over 30% of your allotted credit line.
But if you simply call your credit issuer and request a credit line increase, and they increase it to $10,000, that will put your credit line usage at 20%.
By extending the amount of credit you have, along with using as little of it as possible, you can give your credit score a boost at no additional cost.
More than 190 million Americans have credit cards, and it's safe to say many of these cards aren't maximized to their fullest potential. Whether you have a card to earn cash back, travel rewards, or are using one to build your credit score — it's wise to look at what your card can offer you beyond spending flexibility.
However, the core tenet 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.